CB Insights is a top research organization for the private markets. They do a great job creating market maps and recognizing the emerging technology leaders within a theme.

Last week CB insights released their Top 100 AI-enabled companies. For a few reasons, this is an exciting list:

• “AI” as a buzzword peaked in 2016 and 2017. I believe we are now at the stage of the hype cycle where real value is being built and the firms that have converted technical leadership to customer and industry value are finally emerging
• As with any technology, industry expertise and focus is usually required to convert this broad technology advantage to specific vertical leadership. The fact that CB Insights segmented the companies by industry theme demonstrates the present day “value approach” of this AI-to-industry combination
• Two Energize portfolio companies made the list! Jupiter Intelligence for climate risk and Matroid for computer vision.

At Energize we are thrilled to see these companies gain the appropriate recognition. More exciting, however, is the real value both of these companies are providing their quickly growing customer bases. Our diligence process is always customer focused and we knew that Rich at Jupiter and Reza at Matroid had the respect to frame their technology in the customer’s problem set. I suspect we are going to see both of these firms on this list (and others from the portfolio) in 2022.

Over the past decade, a common question t Fortune 500 CTOs and CIOs were seeking to answer was “what’s your cloud strategy?”

It is still only the 3rd or 4th inning in that cloud transition. And the scale of the cloud technology market, as evidenced by trackers like the Bessemer Cloud Index, is apparent.

So what is the next question? The one I know most asset operators are thinking about is:

“What is your edge strategy?”

The edge has different meanings to different users. A truck, a windmill, a component on the factory floor, an electric vehicle charger, a pipeline, a telecom tower, a security camera. These are all decentralized and intermittently (or continuously) internet-connected assets. Due to the declining costs of sensors, these edge nodes are now growing in capability… and compute.

My simple interpretation is that “the edge” is the decentralized operating environment. And an “edge strategy” is meant to address how and why companies are going to capture, compute, relay, and secure at these decentralized assets. Within that strategy, the executives need to understand which decisions can or need to happen at the edge vs. sent to a centralized cloud infrastructure. These decisions will ultimately affect how the same CTOs re-address their cloud architectures… major implications.

It is hard to fathom just how many use cases, types of value, and new hardware and software products will be developed to address this edge opportunity. We have made a number of investments in the space (more on that tomorrow) and are actively looking for more, great entrepreneurs tackling this problem.

We all know venture-backed startups need to raise capital. A lesser known fact is that venture firms identify and raise capital from “Limited Partners” in their own fundraising process. When Energize’s LPs were performing due diligence on us recently, one of our portfolio executives gave excellent feedback: “I hope the Energize LP base can scale with their ambitions.” The executive was referencing Energize’s growing goal to better serve and capitalize a more sizable portion of the energy and sustainable industry transition.

At Energize, we have a foundational relationship with Caisse de dépôt et placement du Québec (CDPQ) as they are Limited Partners in Energize Ventures I and Energize Ventures II. They invest creatively, have high integrity, and own a diverse set of assets with relevance to the energy transition. And like us, CDPQ is trying to find more ways to get creative to deploy more capital into the energy transition. Therefore, I am pleased that yesterday Energize and CDPQ announced a $125 million co-investment partnership to identify and support leading digital companies addressing the energy and sustainable industry transition.

The Energize blog post can be found here. The CDPQ press release here.

Two of the relevant quotes can be found here:

“The energy transition is accelerating even faster than our predictions. With this change comes a tremendous opportunity for innovative companies serving critical infrastructure, mobility, renewables and other sustainable industries to emerge and capture outsized market share. As a leading institutional investor with deep expertise and reach in the sustainability space, CDPQ is the ideal partner to invest alongside us in digital solutions that accelerate this critical transformation.”

John Tough, managing partner of Energize Ventures

“As part of its long-standing commitment to invest in solutions that address climate change, CDPQ is leveraging opportunities with strategic partners to direct more capital towards innovative investments and sustainability initiatives. We selected Energize as our partner because they have demonstrated an ability to identify leading energy investments while also supporting a cleaner and durable future.”

Mario Therrien, Head of Investment Funds and External Management at CDPQ

I was speaking with one of Energize’s Limited Partners this week. For the VC newbies, LPs are the groups (endowments, family offices, corporates) that actually give our Fund our capital.

Here at Energize we have a number of very experienced family office investors as part of our LP base. I consider myself fortunate that I get to speak with and learn from these individuals. Yesterday I was speaking with one of those LPs and talking about the current market. They had this great quote:

“Don’t pick up pennies off a hi-speed train track.

The individual was referring to the current volatility of the market and how the reward to the upside given the risk in-market seems imbalanced. And that a lot of investors are making risky investments with great economic uncertainty hurtling towards the market. In the conversation that followed we covered how the individual dealt with these events in the past. The advice was to be more of an observer vs participant and keep cash liquidity high because the right events will come… and when they come make sure the reward for the risk is FAR greater than the pennies.

As an early stage investment group, the Energize team has seen this froth and been slightly less active the past 6 months. During this time we doubled down on our research process. We are focusing on “where the puck is going” and have been heads down on about a half dozen deep dives. I am pretty excited about what we are uncovering… and those deep dives are revealing great investment opportunities that are less covered in the current market and better balance the risk/return that expect.

The materials industries are stubbornly analog. As seen below, the analog industries like: agriculture, mining & materials, buildings, rail & road logistics, oil & gas, chemicals, utilities and automotive are all early in their digitization adoption.

The overlap between the physical world and the digital world is lagging more capital-light verticals.

But I love this chart. This chart is the landscape of opportunity for startups and investors focused on the energy and industrial transition, logistics, real estate, the built environment, agtech… etc. While these verticals may not / can not get as digitized as media or financial services, I do believe we have decades of digital innovation ahead of us… and that entrepreneurial focus will enable massive efficiencies and wealth creation for the industry participants.

This week, Barclays released a future of the energy economy presentation and there was a big section on hydrogen. And WOW, there is big growth expected for hydrogen. Based on the below chart you can see that the growth is expected in heating and industrial use cases (including steel) and long haul transport / mobility (trucks, trains, buses).

These are also areas where our current “fluid” fuels are more prevalent vs the electrification trend as there is already infrastructure (pipelines, tanks, etc.) in place.

And the report does a good job describing the different generation sources for how hydrogen can be produced:

• Green hydrogen: Hydrogen generated from renewable sources, mainly through electrolysis.
• Brown hydrogen: Used generically to refer to conventional production using fossil fuels by steam methane reforming, without reduced emissions via the use of carbon capture utilization and storage (CCUS).
• Blue hydrogen: Steam methane reforming with CO2 emissions reduced by CCUS.
• Black hydrogen: Coal-based hydrogen
• Grey hydrogen: Natural-gas-based hydrogen.
• Pink hydrogen: Nuclear-based hydrogen

A trend to watch. The combination of low-cost renewable power to create hydrogen could go a long way to drive impact and big business.

Transmission might be the least interesting part of the energy transition. It is also one of the most important lynch pins of the energy transition as transmission improvements tie together new, but remote renewables and consumers. I covered this in an earlier article: The Energy Transition has a Distribution Problem. Back then I wrote:

“Despite rooftop solar’s breakneck growth, big swaths of the US will continue to be served by a utility-scale generation source. And renewable energy’s greatest inputs (wind, solar) are generally most abundant outside of key metropolis areas – see the graph below and the wind speeds in the middle of the country! Ultimately, we are going to need structural changes to our transmission system. And we suspect that digital solutions will play a big role in that change, just as these digital solutions positively impacted the cost curves for solar & wind costs

The Energy Transition has a Distribution Problem

Massive investment into laying cross-country and cross-continent fibre enabled the internet revolution. Similarly, adding new, digitally-enabled transmission superhighways will accelerate our renewable revolution.

Xcel Power Pathway

Yesterday, Xcel announced a plan to build 560 miles of new transmission to bring lower cost, renewable power from rural wind and solar sites all the way into cities. This is a $1.7 billion project and I suspect we will see MANY more of these announcements over the coming years. We will all win with these new build-outs….

“Investments in our transmission systems increase grid capacity, strengthen reliability, help us continue our clean energy transition. This new transmission line will support our vision to reduce carbon emissions and deliver 100% carbon-free energy by 2050.”

Alice Jackson, president, Xcel Energy-Colorado

Here is the link

Cowen investment banking does a great job summarizing the sustainable technology markets.

February was a busy month. I won’t / can’t add too much commentary.

I am happy to see that the next generation mobility firms that are rewriting the future of our sustainable transportation markets will have access to the public markets. This access provides BOTH a source of capital for these high-growth companies, and provides the public market investor the ability to participate in the industry’s value creation. Win-win.