2020 forced decentralization upon the workforce. At Energize we handled that by revamping our process and focusing on over-communication. This year is a little different. Since ~March we have been back in the office 3-4 days per week. The balance of home/office work feels good.
One of the benefits that is hard to overcome in a fully remote structure is the spontaneity of education and training. In my experience, learning together in an office with a whiteboard remains the best way of transferring intra-team knowledge. Education and training brings a team together and forces team members to make the implicit explicit.
For example, a few weeks back I ran a session on sales efficiency and the nuances to quota ramping and sales cycles. The topic originated when we were discussing a portfolio company’s revenue strategy and I realized some of the team wasn’t as comfortable with the investment (team, capital) required by the company to hit their goals. These session (and others to come) also help elevate the different backgrounds and strengths of our investor group.
There are a lot of reasons to work remote. There are a lot of reasons to have an office. I believe the best way to train and grow a team of investors is in-person. We have hired a number of new professionals here at Energize over the past 12 months and have a few more on the way. To the new employees under consideration for our open roles: we can’t wait to learn alongside you and from your new, additive experiences.
Oh, and Chicago is a great home base. š
Fast Radius merger with ECP Environmental Growth Opportunities Corp. at a post-transaction Equity Value of $1.4 billion
Exciting update from the Energize portfolio today. Please see our blog post here, and copied below. (also coverage in the WSJ and the company’s own blog post). Kudos to Lou, Pat, and the entire Fast Radius team for their continued progress.
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Fast Radius, the leading provider of cloud manufacturing solutions and an Energize portfolio company, today announced that is has entered into a definitive business combination agreement with ECP Environmental Growth Opportunities Corp. (NASDAQ: ENNV), a publicly traded special purpose acquisition company (SPAC). The combined company will have an estimated post-transaction equity value of $1.4 billion.
The net proceeds raised from the transaction will be used to support Fast Radiusā continued growth across customer acquisition, software development, and micro-factory expansion. Founders Lou Rassey, Pat McCusker, Bill King and John Nanry will continue to lead the company and remain committed to executing Fast Radiusā proven business model and driving value for all stakeholders.
The intersection of new technology and traditional manufacturing
The manufacturing industry is reaching an inflection point and is primed for digital innovation. In the past, the sector has been dominated by analog and often outdated operational processes, often lagging behind other industries in terms of technology adoption. And while there are many digital tools available to help simplify manufacturing operations and enhance customer experience, the problem is that many of these technologies do not integrate well with the existing infrastructure. We have seen a need among industrial manufacturers for solutions that can help address complex challenges that come with managing global supply chains. At the same time, the industry needs innovation that can help further drive down costs and optimize efficiency ā both of which benefit the end consumer.
Fast Radiusā integrated digital and physical platform simplifies the way parts are designed, made and moved around the world. We believe their Cloud Manufacturing Platform technology is poised to have a profound impact on the future of the industry.
Our relationship with Fast Radius
We first met the Fast Radius team in 2019, initially invested in their Series B in early 2020, and then followed up with another investment ā including capital deployed from our growth fund ā in Q1 2021. Both Energize and Fast Radius being based in Chicago, we had the opportunity to walk over to their headquarters to tour their factory, get to know the team and learn more about their product. We left that initial meeting with a strong feeling that the technology we just saw would be the future of manufacturing.
Lou Rassey presenting at Energize Demo Day in Chicago in 2019
At Energize, we are big believers in the decentralization of industrial processes to increase operational efficiency, lower costs and improve sustainability. Fast Radiusā Cloud Manufacturing Platform enables seamless and on-demand production of parts, helping customers address supply chain challenges and efficiently scale their business, all while operating more sustainably.
While Fast Radius has a strong track record with customers in industries like healthcare and robotics, we are also seeing new opportunities arise to unlock value in energy and sustainable industry ā such as the design and manufacturing of parts for solar installation and electric vehicles. In our partnership with the team, we have focused on helping them accelerate expansion of their software platform, identify and launch new applications, and scale their production-grade cloud manufacturing capacity.
An exciting milestone for a deserving team
An extremely important piece in Energizeās due diligence process and evaluation of a potential investment is the team. A technology can be world-class and poised to disrupt an industry, but without the guidance and leadership of the right team, it is not a good investment. Fast Radiusā team, led by Lou, Pat, Bill and John has expertise that runs deep and wide across manufacturing, engineering, industrial innovation and technology. More importantly, they are relentlessly committed to their customers. Fast Radius is not a design or fulfillment shop, but a long-term partner in helping make customersā visions a reality.
We are thrilled to support Fast Radius in this next step and are excited for whatās to come as they continue to transform the manufacturing industry throughs software innovation.
I would venture that ~80% of the people I engage with over email on a weekly basis are also readers here.
So, if I am slightly slower in responding the next 2 weeks, it is because I am out on vacation with my family. Need time to recharge… and am aiming to cap work at 1-2 hours per day. Yesterday had the hours creep back up… but there are exciting developments underway here at Energize. And sometimes (increasingly all of the time) the work feels like the “fun”.
We kicked off our midyear review process here at Energize last week and I held my 1:1s with my team this week.
Every year we have a robust planning and strategy session for the firm’s top 5 goals. Then every individual (investor, platform) identifies how they will contribute towards those efforts through individual and team-oriented metrics. As a team we have truly embraced the structure and it is one of my happier implementations here at Energize.
Investing can become a single player game. Almost all of our development efforts are around enforcing a team approach where we feel success in the firm’s collaborative advancement. I kick off every review with a 2-3 page summary of my sentiment towards the firm’s current status. VC funds tend to define success in longer (5-10 year) increments that match the development of the portfolio. Investment firms can have an even longer horizon as talent and multiple portfolios develop. Balancing the short term quarterly progress with the long-term horizon can be hard. In my midyear review I talked about that trade-off and wanted to share it here:
In many ways I judge our near-term success by constantly asking myself these three questions
Are we making long-term investments, and avoiding short-term thinking?
Are the correct teammates in positions where their strengths can be maximized?
Are we responding to our stakeholders (entrepreneurs, LPs, co-investors) and iterating to stay sharp on near-term execution?
These questions stirred some good internal conversations. I will post some of the takeaways over the coming weeks.
I worked at UBS right after undergrad. It was the mid-to-late 2000s and there was an abundance of press (and hysteria) around two key items: Private Equity, and Oil & Gas prices.
Blackstone, as the face of mega-PE, went public to a heap of fanfare in 2007. Oil and gas peaked in June 2008 at $170/ barrel. Both topics covered CNBC for months. Due almost entirely to the financial collapse, the subsequent 3-4 years were quite dismal for both themes.
PE began bouncing back in the early 2010s and oil-related commodity prices have stayed depressed over the past decade. While there has been some recent resurgence on oil prices, the O&G private equity firms that dominated the markets in the 2000s are far less influential than their earlier vintages. Some of those oil & gas firms are pivoting to renewables.
One of the most traditional O&G names that is attempting a renewables pivot is EnCap. Long a carbon-based investor (and still has exposure there) the firm is beginning to invest a fair amount into renewable efforts. One of those examples is Jupiter Power, a battery developer, where a number of great contacts I met through Energize’s LP base are now working.
Another pillar of the the traditional infrastructure PE world is EQT. They used to invest in more carbon-based firms, but now are moving to next-generation infrastructure, including renewables. They had previously founded O2 Power, a utility-scale renewables-focused developer JV with with Temasek.
EQT announced another interesting deal today, with the acquisition of renewable energy developer Cypress Creek Renewables. Cypress has developed over 11 GW of power and currently operates nearly 2 GW of assets. My suspicion is that EQT is not investing here just for the asset in its’ current form, or even the current trajectory. I suspect that EQT is also going to be adding a lot of capital to EQT’s balance sheet to help Cypress grow to meet the major demand for community solar and utility scale projects in the US. Net while this is a full buyout, I expect there to be a “growth equity” looking incremental capitalization to the company.
This may seem like a more standard deal, but this buyout + growth capitalization deal is specifically new to the energy transition. Most of these transactions to-date have been exclusively project finance or growth equity. The shift for EQT to control ownership shows a desire to be a larger player in the space, and also shows greater conviction on renewables as an asset class. Given EQT’s brand presence, I predict that more large PE players will be entering the renewables arena.
Thoma Bravo agreed to acquire QAD Inc. (Nasdaq: QADA), a Santa Barbara, Calif.-based provider of manufacturing and supply chain solutions in the cloud, for about $2 billion. QAD is a leading provider of next-generation manufacturing and supply chain solutions in the cloud. Thoma Bravo is one of the premier technology-focused private equity firms with particular expertise on the software and technology-enabled services sector.
The company has $317M of trailing twelve month revenue, 60% gross margins and $14M of operating income. Growth at the company has been flat-to-down for the past 3 years. The digitization of manufacturing and supply chain is currently experiencing meaningful growth so with QAD’s growth stagnating it means the firm is losing market share, perhaps to earlier stage companies.
So why is Thoma Bravo interested?
Thoma Bravo is known for bolting on acquisitions to their platform portfolio companies. Bolt-ons work well when a central, trusted platform/brand can add new products and immediately offer that technology to their existing customers through sales channels. QAD is exactly that trusted brand in the manufacturing and supply chain market. I expect Thoma Bravo will help QAD acquire some newer products and technologies and add these products into QAD’s existing sales channels.
The Metrics
6.4x trailing twelve month revenue, very low end of revenue multiples, but consistent with a no-growth industrial technology company. These new bolt-on products will drive growth and immediately expand the revenue multiple of the business. If QAD can move to even 15% annual growth, there would likely drive a nearly 50% increase in QAD’s valuation revenue revenue multiple. (10x TTM revenue). Be on the lookout for bolt-on acquisitions in the space in the coming quarters…
Industrial Tech M&A: Rockwell acquires Plex for $2.2bn
Last winter I covered the industrial firms that best use M&A to infuse digital applications within their growth framework.
One of those companies I highlighted was Rockwell. That original deep dive can be found here: Rockwell Automation: Ready, Set, Go. In that post I wrote the following:
“Very few firms provide such context on their intent and area of focus for inorganic growth. Rockwell makes it pretty clear: acquiring at least $250M of revenue derived mostly from industrial software businesses over the next 3-4 years. The business units are simplified and the areas of focus for growth are well-defined. I expect Rockwell to be an active player in industrial technology M&A over the coming years. High growth start-ups in the space should develop relationships accordinglyā¦”
They also shared their targets:
With all of that background, if I were to have a second title of this article it would be: “right on queue“.
Rockwell is acquiring Plex for $2.2 billion. Plex is an industrial cloud operator that helps manage more than 8 billion indsutrial cloud data points every day. If industrial operations are getting digitized, Plex plays an important role in capturing and storing that data. The company has more than 700 customers and nearly $160M in revenue in 2020.
If you look at the chart above, Plex fits very well within “Information Solutions” and “Connected Services” for where Rockwell was targeting inorganic growth. And with $150M+ in revenue, Rockwell is ~2/3rds of the way to their annual goal of their annual $250M inorganic revenue addition goal.
Metrics
Plex was acquired for 14x their trailing twelve month revenue figure. The median figure on the Bessemer Cloud Index is 17x TTM revenue and 30% growth rate. Bottom quartile growth rate is 19% and that earns a SaaS company a 10x multiple. Assuming some M&A premium, I would venture that Plex was growing around 15-20% annually. This is a great scale (meaningfully large) and growth rate for Rockwell. As always, they continue to execute on M&A.
Earlier this week one of our portfolio companies, Jupiter Intelligence, announced a strategic relationship with Guidehouse. Guidehouse and Jupiter created a strategic alliance to help utilities quantify climate risk and build resilience. As the energy transition intensifies, energy providers must create and implement integrated plans to address climate resilience. Guidehouse (formerly PWC’s public sector consultancy) is a leading global provider of consulting services to the public and commercial markets, with broad capabilities in management, technology, and risk consulting.
Many technology companies actively avoid working with consultants to deliver commercial traction. It implies a few negative traits to the sale:
1- Indirect access to the end customer
2- Implied lengthy integration or sales cycle
While there is no universal rule, I tend to believe that consultancies, like Guidehouse, can be a very important part of a start-ups journey. I see 4 main reasons:
1- Validation and trust: Big corporates have been burned by committing to a startup, only to see that NewCo go out of business…or worse, be adopted or acquired by a competitor! Consultants vet the startups and will maintain the technology relationship, and find an alternative, should the startup go down hill.
2- Corporates require white glove service: if you are an early stage startup, you are likely going to get overwhelmed with corporate demands. The consultancy helps manage those requests (and bills hourly, accordingly!).
3- Finding budget: If your technology is new, or solves a new problem in the organization, consultants can work wonders in helping you find the internal champion, and budget. Their presentations will prove RoI and then also identify the best groups in the organization that will benefit from the new technology.
4- Reference and Distribution: Consultants make money on advisory services and integration services. With a new technology start-up, the consultant makes $ from both opportunities. With a proven ability to help a client, a consultant can quickly replicate the offering for the other, large customers. The start-up is essentially a medium for the consultant to grow a relationship with a corporate. But, all three sides win: more tech sold & adopted, more digital corporate, well-paid consultant.
Guidehouse checks a lot of these boxes for Jupiter and I am excited for them to help address the energy and industrial verticals within the Fortune 2000.
Earlier this year, Energize announced the hiring of Kevin Stevens. Kevin joined us to get our Growth Fund efforts off the ground. To say he has been busy is an understatement. Today we announce the first of a number of hires dedicated to the effort. The job post can be found here.
Also, Kevin wrote this about the firm and role over on his website:
I had a hunch I was joining something special when I joined to Energize almost 6 months ago. My experience has surpassed even my highest expectations.
Now it’s your chance to become part our growing team. We’re hiring a Principal for our growth equity platform. The position will start Q4 of this year and will be based in Chicago.
With the semantics out of the way, it’s worth me explaining why Energize and what I think are a few of the best parts about this potential role. Here’s a sense of how we think and work internally:
Quality is contagious. The little things matter and attention to the craft of investing are valued here. You have to enjoy being accountable to others.
We do things our own way. We choose to be original and find creative solutions.
We favor long-term thinking. The environment is fast-paced, and we execute with urgency, but always with the long-term in mind.
This role is an investing role on a potential partner track, but we’re also entrepreneurial at heart. As we look to build out our platform, we’ll expect you to think creatively in all aspects of our firm.
Kevin Stevens tweeted the below about how cars are going digital – and posits how a more digital mean of transport requires investment into more traditional IT themes: data analytics, cybersecurity, etc. Check out the graph below. It will surprise you.
