Author: John Tough

The Targets of Big Balance Sheets

The Targets of Big Balance Sheets

Goldman Sachs has a podcast called Exchanges at Goldman Sachs. They kicked off their 2023 series with a summary on the M&A outlook for 2023, titled “Complex but Optimistic Outlook for Deal Making”

There were 5 topics in here that jumped out to me for their relevance in the current environment. I also thought these were helpful in simplifying what megatrends the biggest balance sheets in the world are focusing on right now.

Corporate Simplification: investors are looking to invest in companies that have exposure to specific sectors. The economy is being affected and rebounding quite differently depending on the sector and investors are heavily using a lowest common denominator approach to multiples if a company has a sector with material headwind exposure. This is causing spin-outs at larger corporations and firms with more clear growth opportunities to receive more attention.

The Trend of Technology Shift is Still Accelerating: technology companies that help corporates meet strategic goals are still high on the priority list- COVID made clear where certain companies were unprepared in their technology stacks, supple chains, customer engagements. Corproates are still trying to reposition their companies for the increasingly digital economy and finding ways to drive customer value through technology acquisitions.

Focus on ESG is Still Accelerating: most large corporates have long-term strategic goals to better incorporate ESG targets into their businesses. Activists are beginning to launch ESG-specific campaigns.

Private Market Liquidity is High: Private market investors have record cash levels. But these investors are very comfortable, and already imposing, heavy structure on investments. Europe is also more favorably priced (both due to valuation multiples and currency fluctuations) and this is creating US private equity firms increasing deal interest in those markets.

Financing and M&A: Record high cash balances at the Fortune 2000 and investment grade debt is still reasonably priced and available. The ability for large corprorates to get creative with their balance sheets will create a wave of M&A opportunity IF sellers are willing to come down to market on pricing. Rate volatility is currently hurting deal volume, but higher rates wont crush volume – so long as the rates settle at those higher levels.

A summary topic is “Confidence” at the C-suite level. Executives are thinking longer-term and trying to prepare companies to be more resilient so that there is near-term quarterly hits but as well as long-term risk preparation for resilience.

Drivers to “Confidence” at the Fortune 500 level and Series A-D level can be quite different. The startups that successfully emerge from the last few chaotic years will be strong and resilient. Many of our investments that have exposure to “technology”, “ESG” and have “simple” industry and customer value propositions are happy with their current market position.

The Current State

The Current State

Hello everyone… I hope your 2023 has been starting well! Our team is back and already geared up for another tremendous year. But first, a quick look at the current market.

2022 was a tumultuous year with dramatic public market swings. There are now daily announcements of sizable layoffs from technology giants like Salesforce, Amazon, and Facebook. I believe that these foundational companies have firm grasps on their businesses and foresee top line softening in 2023. With those weakening indications, many software companies are now cutting personnel costs to manage 2023 free cash flow. As a result of muted growth expectations, Energize is now seeing public market valuation declines for technology companies find their way into the earlier stage.

Across the technology markets, we are seeing (whether publicly announced or not) nearly every company reduce current workforce by 10-20%. These adjustments are happening through Reduction in Force events, standard performance reviews, or more managerial tactics (return to office requirements, etc.) I personally believe this “trimming” is probably healthy for the market as cost of capital stabilized to more traditional levels and is forcing more focus at every maturity level.

There is also a bifurcation in the market. While technology budgets and valuations are currently under more scrutiny, corporate support for sustainability and energy transition related budgets has grown materially over the past 12 months. Companies with direct exposure to renewables, the electrification of mobility, materials efficiency and the carbon markets are overachieving. The corporate demands in these areas are overcoming interest rate and recession concerns and we expect that these sustainability markets will be rare greenshoots for the entrepreneurial ecosystem in 2023.

The holding horizon for an investment in the venture and growth investing markets is guided to be 5-10 years. With that long duration, great companies compound value in good and hard years. The best companies compound value and maintain cash efficiency so that they can identify the optimal time to create liquidity for shareholders. 2023 is going to a tougher year in the markets and I do not see many liquidity events. But, energy and sustainability will be uniquely positioned to grow amidst the broader macro concerns. I’m both an optimist and a realist and am cautiously optimistic for our portfolio and investment pipeline.

The Annual General Meeting

The Annual General Meeting

Yesterday Energize hosted our 5th annual investor day. While these events can be high stress, I enjoy them because they give the team the ability to show our LPs all of the work going on behind the scenes.

The sentiment was positive but cautious. On one hand we have macro concerns and on the other we have a sustainability and renewables market with roaring tailwinds. Execution will drive the best companies to win and will anoint the enduring companies.

At the end of the day portion of our scheduling we took a team photo. I thought it was worth sharing.

DroneDeploy acquires StructionSite, M&A is here

DroneDeploy acquires StructionSite, M&A is here

We are in the stage of the innovation cycle where capital costs are driving consolidation as investors and customers alike are looking for scale and value. Specifically, big corporates are very focused on moving budget to well capitalized and enduring technology companies and the the tech firms in this pole position are about to be major beneficiaries of this budget consolidation. I believe we are going to see a lot of this M&A within our theme over the next 1-2 years.

Energize has been an investor in DroneDeploy since 2017 and our thesis was reality capture technologies to advance the sustainability markets. We believed that there could be one defacto capture and analytics platform and have witnessed the DroneDeploy team achieve that mission.

Today DroneDeploy announced the acquisition of StructionSite. While DroneDeploy is the leader in aerial capture and increasingly in robotic ground based capture, they were missing the handheld and more indoor capture method. StructionSite brings that technology and customer set to the platform.

This is what the company wrote on LinkedIn:

We could not be more excited to announce our agreement to acquire StructionSite, the leading provider of ground reality capture for the construction industry.

Together, we will create the world’s most complete reality capture platform – enabling users to perform aerial, ground, interior and exterior capture in one integrated solution.

This agreement meets industry demand for and accelerates both DroneDeploy and StructionSite’s roadmaps to build “a single platform to document, inspect and measure the exterior and interior of their assets and infrastructure”.

For more information 👉 https://lnkd.in/d3jnG-5t

It will be exciting to see the new scale of DroneDeploy.

Choosing to Grow, Together- New Hires

Choosing to Grow, Together- New Hires

Here at Energize we have our “Ethos” on the wall in our main room… and speak about our core tenants frequently. One of those is “we choose to grow, together”. The implication there is that we could stay relatively small and constrained. But, we want to scale with the space so we can continue to serve our entrepreneurs and LPs as the sustainability industry advances.

Part of that scale means bringing on new talent to help us achieve our goals. This week we formally announced that we added 4 new team members. I have mentioned some of them before on this blog, but worth the aggregate announcement as well!

Energize has built out a portfolio services group, (codename coming out soon!) and made two additional hires. First is Jeff Schmidt, Head of Commercialization. We first met Jeff through DroneDeploy and are very fortunate to have him full-time with us here in Chicago. He helps educate our investment team on all-things revenue and Go-To-Market…. and most importantly is an active advisor to our portfolio on their growth strategies in this area. He is already spending A LOT of time with our emerging companies and it is clear his skillset is truly rare. Jeff is also managing the commercialization relationships between our portfolio and our network.

David Yi and I go way back. I first met David in 2013 when he became the part-time CFO for Choose Energy. We worked together through the exit in 2016 and I have long considered him one of the smartest strategically oriented finance professionals in the Bay area. We have had him work with several of our portfolio companies already to get models/fundraise presentations ready and is the acting CFO for 2-3 of them right now as well. Hiring great finance leadership at the emerging stage is hard and we intend to make this a strength and resource for our portfolio.

On the investment side we added Meredith Breach to the Growth Equity platform. She joins us from Vista Equity and has hit the ground running. Her financial and executive partnership strategy is already paying major dividends. She and Kevin are a powerful duo.

And finally, we hired Jarell Mason as a Senior Associate to our Ventures platform. Jarell is a Chicago Booth MBA graduate and spent time in the traditional energy space prior to getting his MBA. Jarell is very active on our research deep dives already and I have been fortunate to work with him on the cybersecurity and OT ideas. He has a few special projects that we will be announcing soon, as well.

We will continue to add team members to accentuate our strengths and complement our weaknesses. Each of these employees makes Energize and our portfolio better. I am excited to see what they can accomplish.

Brief Interview with Axios Pro Climate on State of the Market

Brief Interview with Axios Pro Climate on State of the Market

Energize’s work over the past few quarters came to public attention this week. As a result I was interviewed by Axios Pro Climate around the state of the market. I liked the direct framing of the questions and wanted to share. Axios Pro Climate has quickly become a leader in Climate tech reporting. You can sign up here, if interested.

Here is the post:

This week we’re talking with John Tough, managing partner of Energize Ventures, a Chicago-based VC that focuses on early- and growth-stage companies in climate tech.

Why he matters: Energize had a big week, announcing lead investments in Sitetracker, which has developed management software for critical infrastructure, and Sinai Technologies, a San Francisco-based decarbonization software provider focused on industry. 

What in your view has been the big story in clean energy/climate tech this week?

  • The Energy Independence & Security Act initially included parameters to rapidly expand transmission lines and renewables-related interconnection requests in the United States. 
  • It now appears that the transmission portion of the bill is off the table, likely impacting both the timelines and unit economics for large-scale renewables projects.

What would you add to the narrative?

  • The best renewables firms were already charging forward and not relying on government funding. Renewables developers are taking lessons from the construction technology landscape and adopting digital solutions that help manage the deployment of increasingly distributed assets. 
  • Critical-infrastructure-focused software can help deliver and manage the increasing scale, interconnection needs, and network management of solar and wind projects. 

By contrast, what’s going under-noticed?

  • An overabundance of decarbonization tools focus on serving the technology landscape, while ironically, asset-heavy and emerging market emitters — where the bulk of greenhouse gas emissions reside — lack access to effective reduction strategies. 

In three-ish words, what change would you make to clean energy/climate-tech investing?

  • Cost of capital matters: Renewables and sustainability-focused capital projects have historically been hurt by rising interest rates that are passed through in project finance mechanisms.
Energize Leads $96M investment into Sitetracker

Energize Leads $96M investment into Sitetracker

In 2018 the Energize team was executing one of our textbook deep dives. The goal of our deep dive was to find the new digital solutions that will help manage the then-imminent amplification of decentralized assets. When we came across Sitetracker and CEO, Giuseppe Incitti, we knew we had a match. Giuseppe saw the future similarly and together we agreed to invest in the company’s ambitions to bring their software to renewables.

It took a few quarters of education and sales ramping, but Sitetracker’s execution in renewables today is nothing short of masterful. Almost every sizable EV charging network now uses Sitetracker to manage deployment. The rooftop solar installer industry is coming onboard, and the energy efficiency customers are ramping up. Sitetracker is executing this growth while continuing to be the de facto deployment solution for telecom. Energize led this round and Kevin Stevens (Partner, Head of Growth Equity) is joining me on the company’s board. Energize is now the largest shareholder at Sitetracker and we believe there is tremendous opportunity ahead for the company. Our co-investors at HIG and NEA have been great partners and we are excited to continue working with them as well.

The Energize blog post can be found here, and is pasted below. Sitetracker’s press release is here.

Why We’re Continuing to Invest in Sitetracker

We’re excited to announce Energize’s continued investment in Sitetracker, the operations management software for renewable energy and telecommunications infrastructure deployment, marking our third investment in the company. Sitetracker has raised $96M of new capital, including a $66M Series D led by Energize and another $30M in debt financing from BridgeBank. Existing investors H.I.G. Growth Partners, National Grid Partners, Clearvision Ventures and others joined us in the Series D financing alongside new investors NTT Docomo Ventures, Kingfisher Investment Advisors and Raine Next-Gen Communications. This is an investment out of our growth equity fund, and Kevin Stevens, a partner and head of Energize’s growth equity platform, joins the company’s board of directors.

This latest funding brings Sitetracker’s total capital raised to nearly $200 million and will help the company support the rapid energy transition while cementing their standing as the telecom industry’s deployment software of choice.

The Digital Backbone for the Next Generation of Clean Energy

The tailwinds that prompted Energize’s 2019 Series B investment in Sitetracker have grown even stronger over the last three years, as global critical infrastructure deployment has scaled to accommodate the buildout of 5G networks and a cleaner, more distributed energy grid. When Energize initially invested in Sitetracker, we were guided by our thesis that the decentralization of telecom assets was a preview of the transformation awaiting the energy sector. Once a system composed strictly of poles, wires and underground cables, the telecom industry built more cell towers between 2018 and 2021 than it had in the last seven years combined, bringing the total number of operating cell towers in the U.S. to more than 417,000. That growth has only accelerated: the total number of towers and cells globally now exceeds 5 million. The Sitetracker team had already established their platform as the go-to software for telecom companies at the time of our initial investment, and they’ve continued to strengthen their market leadership in the time since by building a customer base that includes AT&T, Lumen, Zayo and British Telecom.

The energy sector is undergoing a similar transformation, as renewable energy sources are reconfiguring a system that was once primarily power plants, poles and wires. Hopefully by now you’ve seen our Electrifying Everything Deep Dive which includes our mental model for innovation cycles within energy technology:

1. Hardware costs are driven down by R&D investments where market share shifts to the lowest cost provider and customers benefit from commoditization.

2. To meet the demand created by falling prices, new businesses arise with distinctive offerings that are only available by leveraging scale.

3. These businesses eventually need software that uniquely caters to their problems; after attempting in-house solutions, they often turn to external providers that can better meet their needs.

Sitetracker’s platform fits firmly in the third category. Their software allows energy companies – including current customers ChargePoint, NextEra Energy, Southern Company and Duke Energy – to effectively deploy sustainable infrastructure. Solar developers, for example, can use Sitetracker to manage permitting, interconnection requests and construction progress, providing transparency and accelerating time to revenue for their customers. When applied to EV charging infrastructure, developers can oversee the full breadth of chargepoint installation, from managing construction timelines and permitting to ongoing maintenance and vendor management.

Given the rate the energy sector is deploying distributed assets, Sitetracker’s technology solution can help enable outsized growth. The solar industry expects to add over 700 GW of capacity between now and the end of the decade – a number that was estimated before the U.S. passed the Inflation Reduction Act intended to advance clean energy adoption. And the U.S. has installed approximately 120,000 active public EV charging ports to date, with Sitetracker’s current customers owning nearly 50 percent of that total market and accounting for much of the planned growth between now and 2025.

Source: BNEF Electric Vehicle Outlook 2021

Looking Ahead: Growing Alongside Digitization and Sustainability Tailwinds

Sitetracker’s team is adept at converting favorable tailwinds into tremendous market capture. Their software has delivered a 27 percent average increase in project turnaround for their customer base spanning telecom, energy, construction and engineering, real estate and media. And they continue to set their sights on customer success and growth. Sitetracker is currently operating in 30 countries, with plans to deploy their platform to more than 100 countries by the end of 2024. So far in 2022, the team has been building out their software solution offerings, expanding their platform’s mobile functionality and forming partnerships in the 5G space.

We’re excited to support Sitetracker CEO Giuseppe Incitti and his team as they continue to accelerate critical infrastructure deployment.

Energize Leads $22M Series A into SINAI Technologies

Energize Leads $22M Series A into SINAI Technologies

One of the key themes for Energize over the past 2 years has been the decarbonization movement. As covered in the past, we like to identify megatrends and then search out the capital light / digital solutions that will help deliver the impending scale. We have made investments in companies like Patch (API enabled tools and marketplace for carbon markets & related credits), NCX (high value carbon offset verification and origination) .. and now are announcing our third investment… into Sinai! More details on the company are below. I am particularly pleased as this is Eileen Waris’ first board seat representing Energize, and she and Lauren Densham are true leaders on the decarbonization and impact themes.

Why We Invested in Sinai

Energize Ventures is proud to lead the $22 million Series A investment in SINAI Technologies, the decarbonization intelligence platform, marking our third investment in carbon market infrastructure. Energize is joined by Stardust Equity and HighSage, along with previous investors Obvious Ventures, Valo Ventures, Afore and High Alpha. Presidio Ventures, NEC Translink Capital and Singtel Innov8 are also participating. Energize principal Eileen Waris joins SINAI’s board as a director and Lauren Densham joins as a board observer.

The winding road to net-zero

The need for a decarbonized economy becomes more evident with each extreme climate event. While research and development around new decarbonization technologies are critical, many solutions already exist—as Energize has discussed at length in our Electrifying Everything series, up to 70 to 80 percent of U.S.-based emissions could be addressed with technologies that are proven and economically viable today.

While the appetite for investing in and implementing sustainability measures is growing steadily, the challenge lies in deployment. As of December 2021, 21 of the 30 largest U.S. and European oil and gas firms, 26 of the 30 largest U.S. utilities, and all 30 of the largest American, Canadian and European banks have made net-zero commitments, according to an S&P Global Market Intelligence Analysis. Yet based on reporting from June 2022, two-thirds of global companies with net-zero targets haven’t disclosed how they plan to reach their goals. Despite readily deployable technology and public pledges, most companies still don’t know where to begin when it comes to decarbonization.

One reason is that the infrastructure supporting decarbonization efforts remains clunky and largely ineffective. The detailed operational data needed for companies to build a comprehensive decarbonization strategy is often collected in siloes across different platforms or spreadsheets throughout their organization, making it difficult to combine with the data needed to effectively price carbon, create a Marginal Abatement Cost (MAC) curve of available options and build a decarbonization plan. Integrating the data into the capital planning processes needed for long-term investments proves yet another challenge, with many companies turning to consultants – which are often a costly and static solution.  

In carbon-intensive sectors, the stakes for companies to minimize their carbon footprints are even higher, yet the barriers to decarbonization are more prohibitive. Many available solutions on the market lack the complexity required to address heavy emissions, providing only temporary fixes or focusing solely on meeting minimum compliance requirements.

Effective decarbonization solutions are needed for companies to achieve their sustainability pledges. And time is of the essence – because climate change is a feedback loop-based system, a greenhouse gas emission avoided now is more valuable than a larger number of emissions avoided 10 or 20 years from now.

A full-service platform for modeling and executing decarbonization solutions

Enter SINAI, enterprise software that enables deep decarbonization strategies. SINAI’s decarbonization intelligence platform starts by helping major companies in complex industries calculate and analyze their emissions by creating detailed, bottom-up carbon footprint calculations at the process, facility and enterprise level. Where it differentiates itself from other technologies in the carbon accounting space is what comes next: SINAI’s software allows customers to build customized strategies for pricing and reducing carbon emissions across their entire operation, making it a full-service, single source decarbonization solution. Last year, SINAI’s platform tracked over 35 million tons of carbon emissions for customers, while helping them model more than $5 billion of potential capital expenditures for carbon mitigation.

SINAI’s emphasis on actionable, holistic and long-term decarbonization solutions makes their platform invaluable for companies adopting net-zero commitments. Their software is focused on delivering insights to guide the entire journey to decarbonization – moving far beyond low-hanging fruits like LED bulbs and PPAs.

Unlike many of their competitors, SINAI was founded to decarbonize the most emissions-intensive industries and complex supply chains. Many of their customers are in the agriculture, transportation, engineering, manufacturing, and metals and mining industries and have extremely complex emissions tracking needs. Among SINAI’s current customer base are SiemensBayer and ArcelorMittal. SINAI’s focus on these industries delivers an outsized impact on global emissions by helping heavy emitters build optimized, actionable roadmaps for the most efficient, timely and cost-effective solutions to transition to more sustainable operations.

Software holds the key

Energize’s team has studied the decarbonization landscape for the last five years and believes SINAI’s best-in-class software makes it a superior product to other solutions currently on the market. As an investor at the intersection of digitization and sustainability, we think software solutions are essential to enabling existing decarbonization technologies to scale quickly and effectively, allowing for widespread adoption and accelerating the energy transition.

SINAI’s software uses detailed environmental and financial data to automate how companies analyze, forecast and model decarbonization risks and opportunities, helping customers unlock capital-efficient emission reduction strategies and find a profitable place in the low-carbon economy.

Unlike consultants offering fixed strategies, SINAI’s software provides customers with bespoke plans with the ability to adapt fluidly to operational and pricing changes. Their platform is designed for flexibility, making it conducive for large companies with cross-functional internal teams looking to work together to achieve their sustainability goals.

A global team enabling large scale decarbonization

SINAI founders Maria Fujihara (CEO) and Alain Rodriguez’s (CTO) combined expertise in sustainability planning and data infrastructure make them well-equipped to pioneer climate-focused software solutions. Maria brings more than 13 years of experience embedding sustainability into her work as an architect and urban planner. Alain draws on his experience from being an early employee at Uber where he was instrumental in building Uber’s Realtime Business Metrics platform.

Headquartered in San Francisco, SINAI has a global customer base with a large presence in Latin America, Japan and the U.S. Their diverse team is passionate about reversing climate change and enabling sustainable business, a key impact theme for Energize.

This funding will help SINAI expand the deep capabilities and user interface (UI) of their decarbonization platform, as well as continue to build a top-tier team of climate and software experts. We look forward to partnering with Maria, Alain and the SINAI team to support global decarbonization.

Women in Climate Investing – Event in NYC

Women in Climate Investing – Event in NYC

There are a number of climate-related conferences underway this week. We have Climate Week in New York City and Re+ in Anaheim. Next week there is also an event in Pittsburgh.

The Energize team is beginning to attend and host events at these conferences. This morning two Energize investors, Eileen Waris and Honour Masters, held a “Women in Climate” gathering in New York City. As a firm that looks to foster diversity and inclusion we have been deliberate in supporting organizations that deliver this talent. We are also looking to be a convener as our own team believes that we can use our profile to elevate awareness for high promise individuals and attract new talent.

Honour and Eileen proactively created this event and we worked with our co-investor (and Honour’s former firm) Union Square Ventures to put this gathering together. We co-held the event at USV’s beautiful new offices in Brooklyn and over 40 women investors focused on the climate & sustainability themes showed up. Photos from the event are below. I’m pleased that Honour and Eileen took the initiative to put this all together, and that Energize’s team ethos wants to support these events.

If you would like to be included in other events we are hosting, please reach out. We will be hosting another Women in Climate event here in Chicago later this year.

Energize hires Meredith Breach

Energize hires Meredith Breach

Some hires are so obvious that you immediately can’t imagine scaling without them. When we hired Kevin Stevens to take the lead on our growth platform we immediately unlocked scale as our firm went to a multi-strategy model.

Our most recent hire for the Growth platform brings the same contribution expectations. This week we formally announced that Meredith Breach joined Team Energize. Meredith becomes the second dedicated resource to our Growth platform and will help with origination, deal structuring and execution, and ultimately portfolio value and governance coverage. Meredith joins us after spending over 5 years at Vista Equity Partners. We were able to meet and get to know Meredith over a number of months and her skillset and goals are aligned with our lofty ambitions for the growth strategy. Vista Equity is one of the premier growth and control technology investors and we are excited to combine Energize’s approach to investment discovery and domain expertise with Meredith’s more traditional growth equity software background.