“Hertha Metals is the future,” Laureen Meroueh, founder of the one-year-old sustainable steel producer startup told me. This may sound like a familiar, hyperbolic sentiment to those in the world of Silicon Valley, but Meroueh, who says she created a one-of-a-kind method for creating sustainable steel without carbon emissions, is being literal.
Steel is crucial to modern industry—and its demand is only growing. Nearly two billion metric tons of steel are produced every year worldwide. Yet the process of making steel contributes to over 9% of global carbon dioxide emissions, making the way it’s currently produced untenable for a green future. “This metal is so important and fundamental, and there’s hardly any innovation in the sector,” Meroueh said. “I realized it was this trillion-dollar market, and yet no one was really getting deep into the weeds and figuring out how to address it.”
But to think big, you often have to think long-term. Meroueh has been working on creating sustainable technologies to decarbonize heavy industry over the past ten years, she explained. Before founding Hertha Metals, she cofounded Alchemr, a company that builds water electrolyzers. She started Texas-based Hertha Metals last year, yet the startup won’t be at its full-scale commercialization stage, a two-million-ton per-year plant, anytime soon—and she hopes that’s just the beginning. Meroueh explained that Hertha Metals’ sustainable steel will likely go to market for commercial use in the next decade, while smaller samples of the product will be available to a few select customers in the next few years. “Nothing worthwhile is built overnight,” she said. Yet she also thinks there should be more funding avenues for companies like hers, that may not fit into the timeline of VCs’ usual funds.
I spoke to her last week about how she built her company and why more climate tech investors should think long-term when investing in sustainable technology. Our conversation has been edited for length and clarity.
Term Sheet: How did you design the technology for Hertha Metals? Did you know you were going to found a company?
Meroueh: I am an engineer by training and an entrepreneur by heart. I’m a mechanical engineer, civil engineer, and material scientist. I did my master’s and Ph.D. at MIT. While I was there, I kept seeing these technology breakthroughs in MIT News every single day, and I would say to myself, ‘Wow, this technology can have such an impact on the world, where did it go?’ And it went nowhere. Why? Because to have an impact with technology, you need to scale it up and you need to commercialize it. That’s what really drove me into entrepreneurship.
I did a minor in business and entrepreneurship at MIT and really dove into that world. I then asked myself, ‘Where does the world need attention to decarbonize and hit our net zero 2050 goals?’ I studied all the hard-to-abate sectors which are cement, steel, heavy-duty transport, and really fell in love with the challenge that steel presents. I thought, ‘Now, what would a commercial green steel reactor look like?’ and really developed that idea. I founded Hertha Metals [last year] and we were off to the races.
The technique you use for manufacturing steel is the first of its kind, can you explain for those of us who aren’t familiar with engineering how it works?
Today, the [traditional] way steel is made is through a coal-based process, which can be done with either high-grade iron ore or low-grade ore, but low-grade ore is more commonly used because it is cheaper and more abundant. There’s one sustainable solution for green steel that already exists, which is close to commercial scale, called hydrogen direct iron reduction. This technique uses reduced iron coupled with an electric furnace to mitigate carbon emissions. The issue is that this solution is unfortunately only economical when using high-grade iron ore, and less than 15% of the world’s iron ore is of that high grade, so it’s a massive challenge.
That’s where Hertha Metals comes in. Our solution has the ability to use low-grade iron ore, so now we are no longer dependent on high-grade iron ore, which is a very limited and expensive resource. What comes out of our system is a pure molten steel. That steel is the same as the steel that we are used to that we make every day. It’s the same product, we just made it in a different way.
Why is it important to have new, fresh steel as opposed to recycled steel?
Scrap steel and steel recycling are fantastic, and we should continue to optimize that process. However, there are two challenges. One, there is not enough scrap steel in the world to meet demand, even if demand stays the same. But demand is increasing. Second, you cannot make all grades of steel from scrap, because scrap steel comes with these other alloying elements and impurities. So when you’re talking about the high-grade steel required in a certain part of an automobile, for example, you have to make that from iron ore. Roughly 60% of steel comes from scrap, and the other 40% has to come from iron ore.
Who are your customers and prospective customers?
Customers and partners consist of today’s traditional producers, whether they are “mini mills” or integrated steel producers. Other customers are also the end user. For example, the companies that make your cars or make package food cans or install your H-VAC systems. So, we really dip our hands into all of those profiles.
What does your timeline look like in terms of commercialization?
We don’t want to wait eight to 10 years to start engaging with the market and selling products to our customers, and this is something that all of these companies like mine need to think about, right? How do you start engaging with customers and selling products before you reach that final large scale?
We have no doubt in the future of green steel and we have customers that also recognize that we will be getting to a final two-million-ton per-year plant in the next decade. But due to this customer appetite, we are going to be offering products before then, within the next couple of years.
What has your experience been like raising capital as a startup with a longer time horizon?
Companies that have these long-term time horizons to reach final commercial scale, in my opinion, are the most rewarding types of companies to build. What they’re building is going to be massive, and the reward will be massive. So it’s that end vision that really keeps us going and makes it all worthwhile. And it’s that end vision that our investors also believe in.
I’ve leveraged different types of financing buckets. So, we’ve dipped into forms of grants, such as through the Breakthrough Energy Fellows Program. We’ve also dipped into equity financing from venture capitalists. There are also public grants from entities such as the Department of Energy. There are also other financing vehicles that do debt financing and also a kind of convertible note to pay for pilot plants. Those are really important for the type of company I’m building and we need more of those available for startups. (When asked about who her venture investors are, Meroueh explained that the company is not disclosing its venture investors at the moment.)
Do you think investors are paying an appropriate amount of attention to longer-term climate startups?
There should absolutely be more firms focused on investing in longer-term companies, such as nuclear companies, cement companies, steel, etc. There aren’t nearly enough of those people and organizations out there to support these kinds of companies that are beneficial for the world. That being said, there are more and more people seeing the vision.
I encourage venture capital firms to embrace risk. Think about the big picture—the future is coming, whether you’re on board or not. It’s going to be more expensive to ignore climate goals than to pursue them. There are these fantastic companies, such as mine, working towards disrupting [traditional] infrastructure. So I encourage venture capitalists and other types of funders to take that risk and capture the opportunities that are in front of you right now. It’s the time.
Tiger’s 20% haircut: Mega tech investor Tiger Global has been getting hit hard by the tech downturn—20% down kind of hard. According to The Information, Tiger told investors that its $12.7 billion venture fund, launched in October 2021, had a 20% paper loss net of management fees as of December. That’s a deeper loss than it reportedly had in September when it was down 11%. Tiger declined to comment to The Information. —Anne Sraders
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FUNDS + FUNDS OF FUNDS
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