The Physical Constraint Thesis: Chris Gaughan on AI, Infrastructure & Durable Venture Returns

Video Version: https://youtu.be/TnWbCve-DXU

In this high-conviction episode, host Bo Kemp sits down with Chris Gaughan, Founder and Managing Partner of Caelum Ventures, to challenge one of the biggest narratives in today’s economy: that AI is purely a software revolution.

Chris argues something different.

AI does not scale on models alone — it scales on electrons, steel, permitting, and physical infrastructure.

From his roots growing up in Glen Ellyn, Illinois, to captaining Yale Football in 1990, to building and investing at the intersection of global banking, energy, and infrastructure, Chris brings a disciplined, operator-informed perspective to venture capital. His experience co-founding SineWave and financing real-world infrastructure projects shaped what he now calls the “Physical Constraint Thesis” — the idea that the biggest venture returns will come not from chasing AI applications, but from solving the bottlenecks that make AI possible.

Bo and Chris explore why AI’s real gating factors are power availability, data movement, manufacturing throughput, and reliability; the strategic importance of “time-to-power” and why electricity is becoming one of the most valuable assets in technology markets; how infrastructure is becoming software-defined — and where that creates venture-scale opportunity; why regulated markets and utilities may be more durable than traditional venture sectors; the difference between underwriting AI infrastructure versus SaaS — and why mispricing that distinction creates risk; and how constraints create profit pools — and why bottlenecks often generate stronger returns than trends.

Chris also breaks down what Caelum looks for in founders operating at the boundary of AI and infrastructure, where the market is underestimating risk, and why the next great venture outcomes may come from companies designed for financing — not just growth 

This episode is a masterclass in disciplined capital allocation, long-duration thinking, and investing in what actually powers the future.

Because the first million isn’t built on hype.

It’s built on foundations.

Transcript

SPEAKER_01 0:00

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SPEAKER_02 1:27

Well, I am a Chicago guy. I grew up in the west suburbs of Chicago in Glen Allen, uh last of five kids, um working class family, and I then went out to the East Coast and met you um going into my freshman year in college um over 35 years ago.

SPEAKER_01 1:46

I know, right. It's it's so full disclosure, Chris and I were actually assigned as roommates in undergrad. And so we lived together for all four years when we were in school and it maintained relationship, and we played football together. Um and just for full disclosure, you know, Chris not only was an amazing student studying Japanese and many other things, but also was captain of the football team for the 1990 team. Um and talk a little bit about your experience playing football at Yale and what that meant to you, and especially being captain, which at Yale is important because there's only one captain elected every year, unlike in other schools where there may be multiple.

SPEAKER_02 2:27

Well, it was uh just a transformative experience, frankly. Um, and that not only the four years spent there, but probably more importantly the 40 years since. And I was very fortunate to have been the younger brother of uh a guy who had played football. And uh, you know, as the last of five, I looked up to all my siblings and brothers. And my family, particularly my parents, had really instilled the importance of education over everything, including sports and football. And I was the last and least talented in them in my family. Um, so it was really all about the school rather than you know the sport. But, you know, having gone to Yale and then being elected as captain, it was uh another transformative experience in and of itself, because it was a uh tremendous honor, of course, being elected as the only captain, but it was also tremendous responsibility, and I didn't really fully comprehend and understand that responsibility until after I was I was in it.

SPEAKER_01 3:30

Yeah.

SPEAKER_02 3:31

And I do remember the the night I was elected, it was like there there's this feeling of elation and joy and honor, and then it was a oh crap, yeah, yeah, oh crap, this is this is this is a lot, particularly following our good friend John Reese, who is just uh such a phenomenal historic level athlete and leader with you know a charisma and leadership, like innate leadership capabilities that was just frightening to be to be following his footsteps.

SPEAKER_01 4:02

Yeah, John Reese was a phenomenal captain of the 89 team, which we won the Ivy League title, but also he was a captain of the lacrosse team and just really uh a stalwart guy all around. Um and so it was a lot to follow, but I think you did a fantastic job in doing so. Um You know, football is one of those things that you end that game at a point and you never get to go back. So it has a certain kind of resonance to it. But one of the things that really hasn't ended is the relationship with a lot of the guys on our team. Um, you know, we have a uh email chain that we probably speak to, I don't know, at least weekly, um, of about 70 guys out of about 105 that are on the team that are communicating back and forth and have been doing so for 35 plus years. So when you talk about the idea of four years of football but forty years of life, you know, that really it crystallizes what that really means. And we've had a tremendous number of people who've been outrageously successful, both financially and personally and academically and other things. But just tell us a little bit about how you think about that idea the 40 years after you finished playing.

SPEAKER_02 5:16

Oh well, I've uh we we we've we've seen it real time over the course of our last 40 years. Um, and it started before I joined Yale and that or or or decided to go to Yale, and that it started growing up in my family and listening to the local Chicago community, and that, you know, two of my idols as a you know, as a elementary school kid, you know, I'm talking seven, eight, nine years old, was the Chicago Bears, right? So the Chicago Bears, you know, one, we listened to the radio every weekend because my dad hated watching the the TV announcer. So we'd have the TV on watching the Bears game every Sunday, but the sound would be off and we'd be listened to the radio and listen to Mike Pyle. Right. And Mike Pyle was the the captain not only of the Chicago Bears, but of Yale football in the 1960s. And there's this huge, huge personality. And then, of course, the Bears of the 80s, led in large part by the defense, and that was Gary Fentzik.

SPEAKER_01 6:10

Right.

SPEAKER_02 6:10

So when my brother was being recruited to go to Yale, you know, they would send little Chrissy upstairs, right, and hide for a couple hours while the recruiters came like strolling to our house and they're all highly recruited, you know, siblings. And I heard that Gary Fentzik and Karm Coza were coming to our house. Yeah. I said, oh no, no, no, I'm not hiding upstairs. So, you know, I dressed up in my bow tie, walked downstairs, and introduced myself to Gary Fensick, and he signed an autograph, and I had it standing on my wall for forever. So then fast forwarding, you know, it was probably 20 years later, I reconnected with Gary through the Yale Football Association and then with the Concussion CTE Foundation. So that kind of highlighted, like, wow, that was just one path of one, you know, set of relationships that over the subsequent 35 years, I've developed these tremendous relationships from guys that are 30 years older, 30 years younger, and it really highlighted the the value of the, you know, the reward that comes so far beyond the actual time on a playing field and your experience playing the game is so much more in the time spent after playing the game.

SPEAKER_01 7:23

You know, one of the things is when you're an athlete in college, and this is true I think in many schools, if not most, most of the other students think the only reason you got there was because you're an athlete. And that might be true for some of us. But, you know, we're all in this environment where we're trying to figure out the next steps. And for a lot of athletes, particularly the guys that play football, our next step after school, if you didn't get the chance to go pro, was to go into some sort of a financials field. Um, you and I both did the same thing, you know, right after we graduated, we went into the financial field. And that's been an area where the kind of uh dedication and the kind of uh hard work and structure that is applied to football actually works really well in finance. Talk a little bit about your early career and some of the things that you were involved in, because you've had an amazing background. I want to I want to transition from that early career to your more recent work on the venture side, but talk a little bit about that early space. Sure.

SPEAKER_02 8:25

So uh I in hindsight um it was a good time to be graduating. And at the time it was horrible. Yes. You know, that you know it was it was 1991, we were in a deep recession. Um it was hard to get jobs out of college, and you know, we you know went to school thinking that we were gonna have this big advantage of having gone to Yale, you're just set. You know, once you get in, you're you're good. And that became very clear very fast that that was not the case at all. It was it was hard to get a job. So um I was able to get a you know a job at at Bear Stearns, and you know, it was it ended up being the right place at the right time. This was the heyday of the derivatives, right? You know, so I had spent my summers previously working on the floor of the exchanges here in Chicago, um, you know, in the listed derivatives markets, but then the OTC derivatives market became um a real viable financial product that served a number of you know needs, real risk management needs primarily, and I happened to be in the right place at the right time. So that then was launched into launching uh a couple of different hedge funds and all part of that you know network of relationships that were both developed and fostered through throughout the 90s.

SPEAKER_01 9:44

You had always kind of had a visionary thinking about how you should engage in the world. And I mentioned early on that you were studying Japanese, um, you know, and you were doing so at a time when, from the world's perspective, it felt like Jap Japan was going to take over everything, right? So you were kind of on the cutting edge of learning the language so that you could compete. You know, you transitioned from that experience from banking into thinking about a global position for finance. And I know you had started uh to pursue an opportunity with banking that was in Mexico. You looked at some other things and it eventually led you to venture. But talk a little bit about your experience and what grounded you to say, you know, I need to be at a global scale right away.

SPEAKER_02 10:26

Well, there are a couple things. Uh, you know, one was that I felt that I needed some type of competitive advantage over the peers, and that, you know, we we went to school and suddenly we're surrounded by everyone who was really smart and motivated and accomplished, and and I felt that I needed uh uh a need, and and then also uh to follow my own interests and passions. And I was fascinated about East Asian studies and Japan was ruling the world at the time. Um little did I know that that was actually the peak in the Nikkei that you know in in 1990, you know, Japan was really the dominant world power. There were all different types of of new management philosophies, economic policies, all these things that were like, okay, this is this is what works. And little did I know that it would have taken 20, actually 30 years plus to actually retake the high at the Nikkei. That was the peak. And it took quite a while to get over. So so um, you know, working in the derivatives in the 90s, where Japan was still very much relevant with all the volatility and whatnot, um, we then launched a hedge fund, uh, a global macro hedge fund that really bet more on trends, investing in multiple asset classes that involved the likes of Japan, but it really helped um kind of put the the global market in uh a greater perspective of how important it was to have those macro wins at your back on these long-term investment strategies. So that, you know, we need to differentiate between a trade that can make money and uh a strategy that is evergreen, that can adapt and you know to changing times and opportunities.

SPEAKER_01 12:08

Aaron Powell You know, that experience that you had being in the hedge fund, being in volatile markets like that really played, I think, an important role in you thinking strategically about what's next. And you did many other things, but one of those things is your work with Sinewave Capital. And Sinewave has been tremendously successful in a pretty short period of time. But just explain to folks what Sinewave is and the role that you played in some of the investments that Sinewave has uh made.

SPEAKER_02 12:36

Aaron Powell For sure. And uh so uh the Sinewave is a venture capital firm focused on connecting public sector and startup ecosystems. And you know, SAM was very effective in leveraging the team's relationships and expertise uh working with and for the government and connecting uh batches to solve problems that were both uh problems facing government and large corporations. Uh we specifically focused on digital technologies, um high performance computing, uh cybersecurity, big data analytics, and uh we were quite successful. You were right in the sweet spot uh early. So yes, and and you know we have had the opportunity to take a step back and say, okay, well, what did we do right? What could we have done better? And that's what led to the launch of Kalen Ventures. But we can't discount the fact that we we were in the right place at the right time that led to extraordinary performance. That first fund is currently up about 10x. We've distributed over 6x. Um our biggest winners uh made over 100x. Um Databricks was our most successful uh investment. Um and they were just uh got a new investment repriced recently? At 140 billion. Yeah. You know, so so that's one of call it the top 10, you know, performance. Performing uh companies that will be going public at some point in the next couple of years. We've taken some ships off the table on that. But the point is that the the strategy really highlighted the the need to connect multiple different ecosystems. In this case, it was the government, you know, with you know, with with startups and leading technologies of the future.

SPEAKER_01 14:25

You know, one of the things that you had insight with, um, and partly because of your background, kind of taking you from football to your family, you know, to sine wave, is this public-private connection. You know, the effort to actually launch completely new industries doesn't come from purely one side. It's always a public-private partnership. One of the things really that even connects your study with uh Japan is the idea that yes, they were in a market-driven economy, but they were in a market-driven economy that was highly planned and coordinated with the government. Um so when you see that kind of uh activity taking place and you look to kind of create these new industries, that connection is a real key one that not everybody had the advantage of the experiences that you had to really see. And now, you know, knowing that the government would not be able to do some of the things that it's doing today without having worked with private sector companies to develop that technology and figure out how to uh m marketize it and commoditize it in a way that it works, you've had that experience. And just I'm curious, based on that experience, what did you really see as an opportunity for Kalum that was different than what you experienced at Sinewave?

SPEAKER_02 15:41

Great question. And and this is where, you know, even the decision to join Sinewave was a result of other decisions that I had made in other strategies where uh government made or destroyed businesses. Yeah. It goes both ways. And and it does go both ways, that uh just about every day, certainly every administration both creates new industries and destroys new industries pretty much every four to eight years. And you know, going back to our our hedge fund that really kind of bet on some of these policy predictions, long-term trends, um, how could we be have those macro ones at our back with government policy at our back that may change every four to eight years? I launched uh a finance business in Mexico. It was a it was a mortgage finance business that was uh supported by the Mexican government. You know, our investments at at Big Sky led to relationships being developed with the Mexican government. They then offered ridiculous terms, I mean ridiculous terms for us to come down and effectively create a mortgage finance market, a mortgage-backed securities market to bring capital into finance a growth of a middle class in Mexico. And it made all the sense in the world with all the backing in the world from a policy perspective, it got us into business, and by pure dumb luck in that first stage, we were the only ones when the world blew up with a clean balance sheet. And it wasn't because uh you know we had the foresight that the world was going to blow up. Although we can timing it. You know, we we you know although we did feel like the well the Mexico was different because it didn't have the same macroeconomic forces at play as the highly leveraged economies like the US, Australia, and UK and whatnot. But but uh we we got that business up and running with the Mexican government support. We had the clean balance when the world blew up, and and we pivoted to start acquiring performing loan portfolios, securitizing them, then selling them back to the Mexican government, you know, uh because they had this program that's similar to TARP and they would brought this. So we were making a lot of money on that. And and I thought that I was the smartest guy in the world. It's like, okay, this is because you know, I have the foresight, I had the proper judgment, I had, you know, the uh ability to kind of figure this all out ahead of time, and it turned like that.

SPEAKER_01 18:06

Yeah.

SPEAKER_02 18:07

You know, just the moment when I thought I was the smartest guy on the planet, the government calls me up and says, Hey, how are you making your money here? And we kind of walked them through and say, hey, yeah, we're kind of buying these loans here. We're securitizing this. Well, who's buying the bonds? Like, well, you are. We are. Oh, we have a problem. Yeah. You know, pull their their their lines and all the money we thought we made, we ended up losing. You know, so and that was a really, really, really tough time. Fast forward to Sinewave, and you know, I first invested in Sinewave fund just as as Yanif had spun off from NEA. I invested, and then he recruited me to join them. So that's what I'm saying. Yanev being one of the Yanif being, yeah, so so he had he had spun out from NA NEA with this idea, with this thesis, no capital. Like so, so uh I was one of the first investors in LP, and then he recruited me to join his GB. But we really do because we saw in real time how that experience and and and and sets of relationships could really pivot the risk reward in investing from private perspective. So so we could we could uh you know work with the government and knowing which companies they were most interested in, we could get access to the the highest performing startups, the ones with the biggest potential because of these relationships, match the two and effectively know when you know which contracts are in the running, like like which ones are actually generating revenues before they even sign the contract. And and to do that, it it skewed the risk award in our favor.

SPEAKER_01 19:34

You're a bit of an interpreter and facilitator of the market between the public and the private, between what the government says they want and actually getting the private market to to be in a position to provide it and bringing those two things together. It's a powerful position to be in. Exactly.

SPEAKER_02 19:50

And and just by being in the middle and understanding the different perspectives, different needs, different priorities, you could actually solve problems together and make a little money along the way. Yeah. So that's why we then spun off to launch Kalum Ventures, and that there are different ecosystems that really, really matter. We had the government relationships, um, but there was a a real need in the Midwest in particular, Chicago. And this is where we kind of look around and said, okay, well, it's not just at the federal level, it's the state and local level where we have these other relationships, whether it was Yale, Yale football or you know, uh our early careers, just relationships that we've developed over over time. It says, hey, you know, there we have all the ingredients in here to skew the risk reward, you know, in an investment strategy that can replicate the returns achieved in the past while also applying the lessons learned on what we could have done better. So that's why we launched Calum a couple years ago.

SPEAKER_01 20:50

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SPEAKER_00 21:19

Your listening to the first million is always the hardest. We are now returning to the show.

SPEAKER_01 21:27

Talk a little bit about the premise of Kalum because although there is a connection with Sinewave, there's a little bit of a different focus. And I want to move from the conversation about Kalum to talk a little bit about what the kind of landscape looks like today, particularly with artificial intelligence driving things. And I think the role that Kalum has to play is really critical to this conversation about the future. But just before we get there, not to get ahead of ourselves, talk a little bit about Kalum and uh what you see as the opportunity.

SPEAKER_02 22:00

Kenland Ventures is a venture capital firm focused on the intersection of uh energy and IT. And IT is really the IT of the future that includes AI, quantum computing, uh big data analytics, uh high performance, basically everything that is digital, taking what has been developed really over the last 25 years plus and implementing it. So what we are focused on are really the key bottlenecks to next generation industries. So we need to um really understand how AI and high performance computing is changing the world and everything we do. Like this is a transformational shift that is absolutely the most significant in the history of the world. So when we look at you know these big transformational shifts, um we can we can point to the industrial revolution and and and see how that transforms society and and politics and and and uh really everything we we do on a day-to-day basis, we need to take that into consideration. And now more than ever is when we absolutely need the public sector and the private sector to be working together to collaborate. So we're you know, we're focusing on you know this intersection of energy, which is now the the largest cost input for anything that is AI, high performance computing. You know, we we saw glimpses of it of a couple of years ago with uh the bit Bitcoin and and and and crypto, but now you're seeing it at a scale that the that that the energy loads are so massive and they're only getting larger that that is a real bottleneck that we need to think of all types of of energy and how to actually deliver that energy um cheaper, better, faster.

SPEAKER_01 23:49

Yeah, you know, one of the things that I don't know that everyone is really aware of is that almost 60% of literally everything that you can see, wear, hear, drink, eat, what have you, is energy. Right? Energy is incorporated into every single thing that we do. And we've actually been living in an environment for the last 70 years, or at least 50, where we've made energy cheap enough to become unaware of its importance and impact. Right? But now things have moved in a different way, right? The the amount of energy that we were using in the United States had been going down every 10 years since the 50s and has only recently started to turn back up. But because we were using less and less energy, the private sector, public sector rather, didn't have to invest in maintaining that infrastructure. They kind of built new infrastructure as we expanded into the suburbs, but they didn't build, they didn't redo the existing, you know, pipelines and uh rails and all those sorts of things. Well today, now that we're using more energy and it's also older, we have to actually make a new investment. And the money for that really isn't there. It's at this it's coming the the need for the investment is coming at the same time that the usage is increasing. And that's causing the bottleneck that you described. And so in particular, you know, for Calum, um, but broadly, there is this need to think through what the physical constraints are uh to the growth of AI. And if you could just talk a little bit about um the way you think about the physical constraints to AI and where that may lead to an investment opportunity that others aren't seeing.

SPEAKER_02 25:36

So there's two things. The physical constraints uh are energy. Flat out, that is the biggest constraint on not just AI. We're we're talking um quantum computing is uh is an is another industry of the future that is tech-driven. That that that we're s we're still a ways away, but um it will constantly be developed and improved each and every year. We're gonna get closer and closer. And that in itself is going to result in an explosion of new scientific discoveries. So this goes from advanced materials to new processes, uh to uh really a a plethora of of entirely new industries that we aren't even aware of yet.

SPEAKER_01 26:12

Yeah.

SPEAKER_02 26:13

And that's where growth really comes from, is is the the new products, the new industries that we we we we we could hardly even imagine at this point. And the biggest constraint right now is energy.

SPEAKER_01 26:23

You know, one of the things that uh people talk about are with the AI models, kind of the limits to what the AA models can do. You know, I remember I was fortunate enough to have a chance to go to Iceland, and um, this is a bit of a non sequitur, but I'll tell the story anyway. You know, Iceland is actually one of the most homogeneous populations on earth. And every single person who is indigenous to Iceland um uh actually can trace their ancestry back to Eric the Red. And so they have the most complete genealogical information of any other society in on Earth. And because of that, they were actually a really important component to the genome project because they could actually track all the way back to Eric the Red. You know, if you had Alzheimer's, your great-grandfather and this person and that third person and that person had it. So they they they could track all this information. You know, that was basically the late 90s. And between the late 90s and now, you know, we broke the genome code, they can identify everything, you know, that that happened in that time period, and that was done without artificial intelligence. Yep. Right? Now we're at the stage where those same sorts of issues are now benefiting from quantum, they're benefiting from AI, um, and the opportunity to break that code to figure out you know how these things work is happening at a faster and faster rate. But we're bumping into this thing where like you run out of lives in a video game, right? I had six lives, but I already used five, I only got one left, you know, because the energy is such a constraint. In my mind, there are multiple ways for us to deal with the energy. You could um make more of it, which is one of the things that you were talking about. You could use less of it, and I know Caleb has been looking at opportunities to use less of it in its core level, but you could also be more efficient. And that includes even things like battery storage and the like. I'm just curious as you think through what the investment opportunities are of the future, and you look at them, and I'm using those three buckets, but that's not the only way to think about it. Is there any one bucket or two buckets in particular that you think are worthy of real attention versus the other?

SPEAKER_02 28:31

Yeah, I think quite in a single word, uh affordability. You know, I think any technology that is allowing for uh reduced costs in particular, and particularly we we're focusing at the enterprise level. So, you know, any company that can reduce the costs, increase the profits, increase the margins are the companies that are most interesting to us, and that's where the the biggest opportunity lies for us. Rather than focusing on um extraordinarily uh high-valued companies that are still private, late-stage venture that in my mind is is fully priced and uh most likely mispriced. You know, from a macro perspective, there's a mispricing of risk. What I would like is to focus more on kind of the series A, B, early stage companies that have already proven product market fit, already are generating revenues with real customers, um, but really haven't uh had the opportunity to scale and expand, mostly because of sales constraints and capital constraints. So I I would like Kalen to be focusing on these markets while letting the leaders lead. You know, I think those are are actually going to be the acquirers of these companies. And you are gonna get a smaller number of real winners and a larger number of losers. But there are just the masses out there that um uh a plethora of companies, particularly in the Midwest, uh out of the out of the the local ecosystems where there's so much talent, they are undercapitalized. And if we can help foster that ecosystem um uh in the industries of the future that are helping other companies and public institutions reduce their cost, those are the ones that are going to be the most profitable and most sustainable.

SPEAKER_01 30:24

Well, you know, this region in particular in the Midwest is really key for a lot of this. And Illinois in particular benefits from the fact that it has a better kind of grid and energy foundation than many other states do. Um because we've got a diversity between gas and nuclear and other types of power here, um, we've got multiple grids that kind of uh actually come together in the Southland in particular. You can actually access two different grids that reach different parts of the country in that same location. But one of the issues that is both a benefit to the Southland and to this region, and one of the concerns for everyone everywhere is time to power, right? So there's a need for us to now build new manufacturing plants that leverage quantum and robotics and AI and all these different things. There's a need for data centers, there's a need for uh battery storage, there's a need for all this, but most of the places that exist where you can actually get 25 acres or more don't have power. By definition, they're farms that didn't need power. They often don't even have access to water, they often don't have access to people. We have a rare situation here in the Midwest, but in the Southland, in the Chicago region in particular, where we have access to all of those things in one location. And time to power is now becoming one of the gating issues. And I'm just curious, based on the experience you've had from both businesses that you've looked to invest in, but also businesses part of our portfolio, how that's played a role in their growth. And I want to, after that, I'm gonna take you to talk a little bit about some of the things that Caleb specifically is invested in.

SPEAKER_02 32:02

But so uh uh there are a couple of things there. I think um number one, uh getting back to the companies that can reduce costs for others um and make uh existing operations more efficient, um, energy efficient in particular, um the likes of Ocean. So Ocean is a company we're investing in. Um they are a hyperscale data analytics company, and they reduce the costs of developing and maintaining AI models, right? So you know basically the same thing that a Databricks does uh from the U.S.

SPEAKER_01 32:34

Can just describe what a Databricks does. That's the sine wave investment.

SPEAKER_02 32:38

It's a it's a large-scale data atom, it's a data analytics platform um used in AI development and um and and both the management and use of the data itself. So it's uh so Oceant um does the same thing in general terms, but really only focusing on the largest and most complex uh workloads. So it I I wouldn't say it's a direct competitor of Databricks. Databricks is kind of anything to everything um AI related and data analytics related. Um Ocean is a uh m more targeted, but their their market is probably a$35,$40 billion market versus a Databricks$300 billion market, right? But but Ocean is able to do it with 90% less cost.

unknown 33:23

Yeah.

SPEAKER_02 33:24

You know, and they're able to do it because of efficiencies. So they they combine uh uh the the storage and compute platform into a single platform so that those companies that really have these these huge, complex workloads can do it more efficiently and effectively. And that is effectively increasing the profitability for those companies, the private companies, and it's reducing cost for the public sector customers that they have as well.

SPEAKER_01 33:48

Aaron Ross Powell And that's a real important issue. And just as a note, you know, uh Ocean may be targeting a smaller uh addressable market, but let's not be clear, you know, confusing, it's not a small market,$35 billion, it's not a small market. But if they have any level of success similar to what Databricks is, you know, you talked about a 10 times return on that investment at Databricks, a six times cash-on cash return. That's the type of numbers that make people get really excited about a company like Ocean.

SPEAKER_02 34:19

The Databricks was 100x. Yeah. So we so we we we made a hundred X on that, and Ocean isn't um it isn't a hundred X, but Sinewave was ten times not it It doesn't take a lot for uh Ocean to be incredibly successful without coming anywhere near Databricks. Maybe they'd be acquired by it. Exactly. That's just an example of just where we see the the market opportunity in these early to mid-stage companies, particularly companies based in Chicago like Ocean, that is real sh is showing real traction and a very simple value proposition.

SPEAKER_01 34:52

How do you think about um given the opportunities for companies like In Ocean and others that are part of Kalum's portfolio, how do you think about creating a portfolio that reflects the needs of the creation of these industries, but also manages the risk profile um of Kalum and the investors in Kalum and as you're thinking about opportunities going forward?

SPEAKER_02 35:17

Another great question. Uh we invested in a company Enovian, synthetic graphite. It's a critical material essential to uh uh batteries, EV batteries and um electric storage system batteries. Yes. And China controls 97% of the market, either directly or indirectly. There's uh Enovian is literally the only manufacturer, proven manufacturer, qualified manufacturer that can deliver the product that we need to create and secure critical supplies.

SPEAKER_01 35:49

Without that material, you cannot make a battery.

SPEAKER_02 35:52

You can't make a battery. Um so we're entirely reliant upon them. And they're based in Chicago, they're carved out of uh of uh pre-existing conglomerates and Hampstead Industries and Pyrotech, and they uh basically are working with the government, our government, to fund a multi-billion dollar project so that Anovian can be a major supplier to secure the interests of our country. In the meantime, you know, they're working with the state of Georgia, state of Alabama, uh in discussions with Illinois, Michigan, Midwest countries, that the uh states to build these facilities that are multi-billion dollar facilities that are also creating a lot of jobs. Yeah. So we like it because we like the manufacturing, we like the the uh the management team, we we like that they've they've gone through the qualification process, they have everything aligned here, but right now it's a it's a trade case. You know, it's a trade case, they need to settle the trade case, they need the off-take agreements, and they're in discussions with the government to be able to do this one big beautiful deal to create these industries of the future that isn't that isn't even a high-tech industry, but it's an essential input to all these critical industries. Trevor Burrus, Jr.

SPEAKER_01 37:08

I think it's interesting that most of the industries of the future are highly dependent on two things that feel very much not of the future, right? Manufacturing processes and uh raw material. Um without those two things in the supply chain actually being bolstered and addressed, you actually can't get to the future industries. And a lot of the opportunity that it appears that Caleb is in evaluating and investing is what you might call downstream from that future industry, but without it, the future industry doesn't work at all. Exactly. It doesn't work at all. You know, these spaces, especially when you're creating um essentially new segments of a supply chain or an industry, they come with a level of regulation that typically is anathema to a VC. And that's one of the reasons why a lot of the VCs aren't in that space. You figured out that there was an opportunity in that forest with Databricks and what you guys did at Sinewave. What is it that you see today that Kalen was able to kind of replicate that allows you to see through the forest to actually identify the opportunities that others might just be afraid of?

SPEAKER_02 38:22

It starts with the you know the relationships, you know, the relationships and the different perspectives and interests in different ecosystems. So when we start when we talk about the public sector first and foremost, um it is not only at the federal level, but at the state and local levels. And uh and and it's just by understanding the different motivations and people involved in the key decisions at each level, with the experience of having gone through it, both making money and losing money. Right. So you I I I feel like we have You learn a lot by losing money. You learn a lot, you learn a lot by losing money. Um but you also learn a lot from making money and um understanding the people behind that and and and being intellectually honest about what drove a win or a profit versus what drove and there are multiple factors involved, but that perspective, particularly with respect to working with the public sector, yeah, um, is is an advantage. Um and then you know, taking it to like the right here right now, there is so much change right now that there's opportunity. You know, whenever you have a a such a massive shift, not only in technological advances, but societal change that you know is is highlighted by politics, but the politics may just be a reflection of the societal change that's you know, combination of a number of forces that are driving it. Um we see that like all the features in place right here in Chicago and the Midwest, that's untapped.

SPEAKER_01 39:59

Yeah.

SPEAKER_02 39:59

You know, we see it being uh undercapitalized, where there's uh too much capital flowing into certain ecosystems and a relatively small number of companies that are inflating valuations while other companies are being starved by matching those different ecosystems that are looking for attractive risk-adjusted returns versus those that need the capital to really build the businesses and industries of the future. Right. Um, if we can be in that in the center of that and leverage our relationships to pull the two together, a lot of good things can happen.

SPEAKER_01 40:32

You know, this is an area that is not always easy for limited partners to really evaluate and decide to make an investment. Um when that investment goes well, it goes spectacularly well, right? Because you are at the cutting edge of the development of a new industry. Um who are the types of low limited partners, LPs, limited partners, who this opportunity for Kalin and this opportunity for the types of investments really make sense? And who are the people that right now are not paying attention to this, but really should be?

SPEAKER_02 41:07

Yep. That's a great question. Um So first in terms of uh you know, the the venture industry has said that the the largest brand name funds are are all supported by endowments, foundations, pensions, large institutional money, where venture may be between you know 10 and 20 percent of an overall endowments portfolio. Right. And it's long-term enough where uh you know they can take a 10 to 20 year view and be okay with uh uh a liquidity drought, meaning that there haven't been IPOs or exits or MA activity. It's really uh slowed down a lot for the last four or five years, which is fine for the university endowments and pensions that still have other portfolios of cash flow that that can generally support it. Um it's harder for high net worth individuals. You know, and and uh particularly for emerging managers, it tends to be the friends and family that support a first fund. You know, these are relatively small commitments of you know, a couple hundred thousand dollars up to about a million dollars per investment, as opposed to a fifty to a hundred million dollar allocation from the likes of you know uh Yale or Harvard endowment. Um those that are are are missing it, I think, um, are are too focused on short-term performance. And um I think venture more than any other strategy is there's too much focus on investing in a company that has performed well without really taking into account the unique uh factors that led to the performance. And that that includes both good performance and poor performance. So for me and how we've invested is is that we want to invest in in a more holistic approach that evaluates the team, the people, and the underlying forces with a macro overlay. It's like, okay, what macro forces do we feel are at our backs? What um types of features are we looking for, not only in the technologies, but down to the individual entrepreneur management teams?

SPEAKER_01 43:17

You know, one of the things that I think is interesting, when I started my uh opportunity in the finance world, I both was at a venture and a private equity fund. And so we had both funds. They're radically different. The venture was much, much smaller than the private equity side. Um but one of the things that is interesting is that most people that are in this space have never operated a business. Um they've never launched or started a business, they've never taken in that capital, so they don't have a perspective of what you might be feeling as a portfolio company. You and the team that you've had um with Calum all have operational experience in addition to investment experience. And so you can relate, I think. To a lot of the founders who are trying to figure out not just do I need money, but who do I take that money from and why one person versus the next, especially in the space where you're building something that's new. You know, what are some of the things that you do in particular to really um speak to the needs of founders that might be interested in capital from a group like Caleb and you're competing with other people to make that investment?

SPEAKER_02 44:27

And you pointed as the operating expertise and being an entrepreneur ourselves, you know, and that we've all been there in the portfolio with the portfolio companies, we've been in the exact same, and we know how hard it is. You know, we know that, you know, no matter how great an idea, no matter how good your technology, your value proposition, um, there's always going to be these massive obstacles that are hard. So just the the understanding and the empathy of having to have that emotional connection with the entrepreneur and say, hey, we we get it, we've got there, and let's do this together. So we try to take on a more active role with all of our portfolio companies. So we we need to have a concentrated portfolio. We can't make a hundred investments because we can't have a hundred different relationships, like quality relationships, where we are with the entrepreneur helping them develop. Um, at the end of the day, where we're adding the most value is customers. And and and where we are best equipped to make informed decisions is understanding the customer needs before we invest, understanding that there's customer validation before we invest. So we are not day one investors. We like developing relationships with these entrepreneurs, we like helping them, fostering them. Um it helps us and our ecosystem and particularly the government relationships and large corporate relationships where we can give them more uh curated ideas and deal flow. Yeah. But when it comes to actually investing, we want to invest after there's been proof of concept, after there's already a pre-existing relationship with that entrepreneur.

SPEAKER_01 46:02

You know, the uh we're we're winding down a little bit, but I have a couple of questions and I'm gonna have a lightning round for you. But you know, the reason this show is called The First Million is always the hardest is because there are literally four kind of scientific aspects of making your first million that are difficult. Um, and I talk about them in other podcasts, so I won't repeat them all here. Um, but they're also psychological factors. Um and they're all tied to kind of things related to fear and doubt, they're tied to the size of your portfolio, the law of small numbers, um, inertia, how much time it takes to actually get something started before it starts to roll. Um and I'm just curious because you have a background that spans finance, you've been an entrepreneur, you've been at the formation of multiple funds now. When you think about the idea of the first million is always the hardest, what are some of the things that kind of jar you and come back, give you PTSD when you think about what your experience has been?

SPEAKER_02 47:07

The easier it comes, the easier it goes. Um and that uh I'm not sure what would qualify as my first million because I've I've lost I've I've I've lost a lot of money. Lost a lot over the years. So um you know, I I think for me, and I I I can honestly say this has really only been in in hindsight, is the the the notion of building long-term businesses and value creation, regardless of how much cash is in your account.

SPEAKER_01 47:36

Yeah.

SPEAKER_02 47:36

You know, and that if if if the focus is on long-term value creation, there's the the benefit of compounding. You know, compounding, I would say, is probably the the most uh impactful discovery of the world. Yeah. Um and that, you know, because capitalization is one of the key forces of whether you can succeed or not. You need the capital to take you you need to be able to take risks to you know the rewards. Um so I think understanding the long term versus the short term, um, you know, the the short term and growing up in the nineties, particularly in and commissioned shops, it's a different culture. Remember, like that, I think that is a Cadillac steak knives. It's like, you know, you either eat or you starve. And I'm you know, I think that that served us well in in the nineties when we all like w had to pay off our student loans. Yeah. It's like, okay, you need to get up and you gotta plow the field to to eat. You know, so so that that is a a tremendous motivation. But in terms of long-term um business building, you know, I I I think it's it's easy to to keep to get your eye off the ball, so to speak. You know?

SPEAKER_01 48:50

Yeah.

SPEAKER_02 48:50

No, it's to focus too much on the short term rather than the long term.

SPEAKER_01 48:53

And when you think about this year, 2026 and 2027 in particular, what excites you most as an opportunity for you personally, for Caleb going forward?

SPEAKER_02 49:04

Um I I you know, I think it's the change. You know, change is scary, but it's also uh the big where the biggest opportunities lie.

SPEAKER_01 49:16

Yeah.

SPEAKER_02 49:17

Yeah, and and and and that's it. And particularly in our business where we're we're really looking to invest in the long term. Um I think we're gonna be investing in companies that no one's uh ever heard of and probably won't hear of them for another three, four, five years. And suddenly they're gonna wake up and say, wow. You know, these companies have changed the world, um, and you know, we're along for the ride.

SPEAKER_01 49:40

Well, uh before we end, I just have uh a couple of kind of rapid fire finish the sentences. Uh-oh. Um and maybe they're not rapid, but they will be rapid-ish. Uh so I'm gonna give you the the sentence and I want you to finish what you think um the sentence should be. Right. So um AI doesn't scale on models alone. Uh it scales on what? Uh the human element. And the next great venture returns will come from what?

SPEAKER_02 50:15

The implementation of AI technologies. Not the development of AI tools, not AGI. We're talking about the implementation of it and the collaboration of AI and human and the human element.

SPEAKER_01 50:30

And if you were building where AI meets energy and infrastructure, what should you be focused on now? If you're trying to pull those things together. Yeah.

SPEAKER_02 50:43

I would say efficiency is probably overrides all of that, but cheaper, better, faster.

SPEAKER_01 50:48

Well, um, Chris, I just want to thank you for coming in. You're old friend, um, person who's always been at the cutting edge and doing really interesting things. We wish you and Calem Ventures luck, and we'll have you back on uh the show at another time to talk about all the things that you guys are invested in. But thank you, appreciate it. Thank you.