When I first joined KPCB, I got a detailed history of the firm and how a small group of pioneers became technology-first VC investors.
The ‘K’ in KPCB stands for Eugene Kleiner. Beyond being an incredible investor, he had a knack for catchy statements and frameworks that are still applicable today.
Joe Lonsdale, now of 8VC based in Austin, wrote this summary that can be found on Medium.
According to Joe, here are 8 of his most well-known “laws”
Make sure the dog wants to eat the dog food
Build one business at a time.
The time to take the tarts is when they’re being passed.
It’s difficult to see the picture when you’re inside the frame.
Even turkeys can fly in a high wind.
After learning some of the tricks of the trade, some people think they know the trade.
Venture capitalists will stop at nothing to copy success.
Invest in people, not just products.
At different points every year one of these themes seems to outshine the others. Right now, it feels like one of them is coming forth:
“The time to take the tarts is when they’re being passed”
Eugene Kleiner
Right now, for a host of reasons: low interest rates, energy transition going mainstream, big growth in new technologies, policy…. deep tech/cleantech is being served a main course of capital. The most seasoned investors and operators recognize this opportunity and are ramping up balance sheets to make massive technology, team and market share investments in the coming years.
(PS: my favorite Kleiner statement isn’t actually on this list and I will cover it another day!)
Deeptech and Cleantech: No Country for Growth Equity
In business school the phrase was a reference to Eugene Fama’s “Efficient Market Theory”. But in today’s market it feels like this statement is now the valuation expert’s way of throwing their hand in the area and saying “who knows!?!”
I am not going to comment on Gamestop. Instead I am going to focus on how there is no real private market for late stage growth equity serving deeptech and cleantech businesses.
Cleantech and deeptech are generally long-horizon investments with sizable step-wise technical and commercial gains. In many ways these investments resemble pharmaceutical-related investments cycles and payouts. A number of high profile and developmentally expensive drugs don’t move to the next stage… but when a mass-market drug is FDA approved, the windfall covers the costs of the lost trials elsewhere.
There are many high-growth sustainability, electrification and broader deeptech-themed investments hitting the market at high profile valuations. As a private market investor, the valuation jumps these companies earn from the private-to-public move can be surprising.
A lot of people are pointing to public market froth as the logical explanation. The reality of SPAC transactions is that they are a big source of cash … and dilution for the target companies. But these same hi-growth private companies have been mostly starved of capital in the private markets. As a result, executives in the deeptech field are now trained to view financing risk as the primary barrier to investing in IP and subsequently hitting the big payout events.
Meanwhile, the SaaS vertical has every valuation metric meticulously analyzed around pricing. It’s the closest to a liquid market I’ve seen in the private markets: there are indices and the multiples are tracked religiously. There are still bumps when these SaaS companies go public, but the range is knowable. The reason this path to public is more streamlined for traditional SaaS companies is because there is a very healthy and robust late-stage growth equity market acting as a pre-public pool of capital.
The SPAC is effectively becoming the late-stage growth equity vehicle for the deeptech markets. As a result in some cases the future year valuations are being pulled (slightly) forward. And while it is easy to point to froth, I take the opposite view. These are clearly important and valuable companies with aligned economy, humanity and shareholder upside. I am glad that public market investors will be able to participate in the asset appreciation.
But, it’s a shame that our private growth equity markets weren’t able to help these companies grow a bit longer outside of the public eye. And so while it is helpful to have the SPACs in market, I actually believe the story here is the incredible opportunity for growth equity capital that serves the deeptech and cleantech environment.
Knowing the Energize team’s entrepreneurial approach, I expect we are going to do something about this…
Tyler Lancaster’s podcast on Point 01 – a must listen
Tyler Lancaster is a Principal at Energize Ventures. In this Point 01 episode he covers his background, our portfolio approach… and a BUNCH of great details about some companies in our portfolio.
A few themes:
1- Our renewable industries are already way bigger than most people expect… and a huge job growth engine
2- Digital technologies (the shading engine!) are creating massive advancements for development, deployment and maintenance of the new energy economy
3- New administration tailwinds for climate technology are going to be massive: new R&D investments, FERC, DOE and agencies stepping up to reduce red tape, EV charging infrastructure!
He also gives hints on where we are looking to make our next investment. Not only should you listen, but you should connect with Tyler and follow his writing.
Sitetracker’s $42M Series C: Energizing the Future
The best part of my job is getting to meet with entrepreneurs who share with me their vision of the future. At Energize we meet around 500 qualified companies every year. We look for a CEOs storytelling ability and his or her conviction around what will be different and new in the coming years.
Through our own experience, our LPs and our continued learnings, we also develop ‘prepared mind’ theses to our areas of focus. One of those areas is the future state of our critical infrastructure. At Energize we thoroughly believe that our centralized critical infrastructure is dispersing to the edge. Big power plants are being decentralized into wind and solar farms. Rooftop solar and electric vehicle charging infrastructure are infiltrating houses, apartment buildings and commercial buildings. Cell towers are going from huge structures to rooftop cell relay sites. Critical infrastructure is atomizing and distributing. And the new energy economy is at the heart of this change.
When we first met Giuseppe Incitti and the Sitetracker team in 2018, we knew we had an Energize thesis-entrepreneur-future vision match. In addition to that thesis alignment, we also learned that the Sitetracker team had the level of customer respect and sales gumption required to win over the traditionally slow-moving critical infrastructure verticals. Critical infrastructure decisions move slowly by design: there can be no downtime and… once the product is in place… it is probably in place for a 20+ year relationship! The long-term investments that Sitetracker was making in 2018 into product and sales cycles drove us get creative when we led the Series B-2.
Since our investment, Sitetracker has continued to masterfully execute their plan to be the de-facto software platform for the next generation of critical infrastructure. We are thrilled to double down on Sitetracker and their progress. We are co-leading the $42M Series C alongside H.I.G Capital and are thrilled to bring them into the company. We are also happy to welcome new investors Deutsche Telecom Capital Partners, Energy Impact Partners and Clearvision Ventures to the cap table. Existing investors NEA, Wells Fargo, National Grid, and Salesforce Ventures also participated.
I joined the Sitetracker board during the Series B-2 and am excited to announce that our Energize Partner, Katie McClain, is joining the board as well. This is the first company where Energize holds two board seats and we are excited to double down Sitetracker’s growth efforts in the new energy economy.
I have been watching the electric vehicle charging market since 2010. Back then there were a few businesses kicking around with the idea. Boy have times changed.
Over the past few months we have had some major announcements:
ChargePoint going public and is now >$10 billion company
EV Box going public and is now >$2 billion company
EVGo going public and is now >$4 billion company
Ubitricity getting acquired by Shell
Volta raised $125M Series D (Energize an investor, participant)
It is easy to look at these numbers and say “of course”… but I can assure you that even while EV adoption felt inevitable… it is agonizing being “early” to a market. In this “too early?” stage, executives and investors are looking for any signs to double down or accelerate investment… while always being mindful of cash. I call this the yo-yo effect. And this yo-yo effect of being early is very hard on founders and their employees.
I am glad that the industry has tipped. And that all of these firms can firmly and perpetually lean into growth and investment. Let’s throw the yo-yo away.
I posted this post to Forbes as part of my regular M&A and energy transition observations. Link here. Re-posting here.
We all know TeslaTSLA is the current crown jewel of the automotive industry. And investment analysts know of the budding traditional energy business growing like a weed within the Tesla income statement. Alongside their sleek cars, Tesla has rooftop solar and consumer and utility-scale batteries. Tesla makes energy tangible and cool.
While Tesla’s market position in the EV space is strong now, the competition is coming. Sure, they will be able to maintain slightly higher margin than their historical automotive peer set. I argue, however, that being the energy company of the future is a much more lucrative position.
And Tesla’s real competitor in that next-generation energy business is SunRunRUN. They have a strong brand, a growing book of business, and they have a direct line of site to their customer with up to 20-year contracts.
Presently only about 3%, or 2.3 million homes in the US have installed rooftop solar. But rooftop solar is growing: SEIA and Bloomberg New Energy Finance guide that installation will grow from ~500,000 per year n 2020 to 2-4 MILLION per year by 2024. Yes, you are reading that correctly: we should be adding more solar rooftops in 2024 than we have throughout the entire history of our country leading up to that point.
Solar is a “long-tail” industry meaning that there is an incredible number of small, regional installers doing the majority of the work. As a result, SunRun is the leader but actually only owns ~10% of market share in the US, with a 60,000 installation run-rate in Q3 2020. And most interestingly, SunRun’s installation base is nearly 2x the size of Tesla.
If SunRun can hold or expand their market position as the rooftop solar industry grows, the firm should become one of, if not, the largest energy companies in the country. SunRun currently has 500,000 current customers and a customer book that could start growing by 250,000 per year. Within the decade they will be a “top 5 utility equivalent” in North America. Since SunRun will “own” that customer relationship, I expect that they will be well-positioned to be more active in the other home solutions including electric vehicle charging, batteries and other resilience solutions.
From a M&A perspective, I believe SunRun is an incredibly strategic asset within the North American energy markets. They have a strong and growing brand and are well-positioned for other distributed energy services. SunRun should be on the top of the target list for any forward-thinking traditional energy company. Similarly, if any enterprising automobile company is looking to create the next bundled mobility + energy company, they don’t have to look any farther than SunRun as their optimal partner.
The Energy Transition Makes Power & Utilities Pro-Cyclical?
Look up any historical investments book and pretty early on there is are definitions of cyclical, defensive, and counter-cyclical businesses.
A cyclical business is inherently discretionary and peak and bust at an economic cadence. Within my focus, this is oil & gas, airplanes, jewelry, construction, etc. A defensive business is easier to define: a staple where demand is consistent and swings more muted. By its’ regulated design, the power and gas utility business are inherently defensive.
What I find fascinating is how technology and the energy transition is going to move the overall power and utility markets from defensive stock characteristics to more cyclical in nature.
How? There are two reasons, I detail below:
1- Time To Value -> Mismatched Supply -> Cyclicality
Generally, the longer it takes for a good to go from raw materials to value delivered causes imbalances in the supply chain. Historically this delay in oil and gas has resulted in mismatched supply to the market due to decisions made under a different economic assumptions. (Other industries include airlines: the time from order to delivery may look quite different!)
What Changes? As the electrify everything mantra grows, I have been vocal how “the firm that controls demand will win the market.” And as power prices continue to plummet amidst an overbuild scenario, the firms that have demand are the ones that will set the terms. And those terms won’t be fixed rate, like they are today. The energy consumer will tie the power price to their underlying product demand and margin profile.
This moves the standard power contract from a more proximate and certain customer relationship to distanced and uncertain value payout. Power investments will have less certainty and mismatched capital allocations will occur as these power companies gain more exposure to their customer’s cyclical demand.
2- Technology Transition results in Power Quality Pricing
Most energy transition professionals assume some future rosy grid that is self-balancing amongst renewables, EV charging, consumer adjustments, etc. Maybe 50 years from now. But the intermediate steps are going to be messy. And
What Changes? I believe this “intermediate messiness” will result in greater awareness around power quality (Californians get this with the blackouts) and the ability for quality-based pricing around uptime, power quality (data centers, etc.) and source. This transition happens in most verticals: a commodity product ultimately leads to a premium version. That hasn’t happened in electricity yet but I suspect the new energy economy (wind, solar, batteries) and consumer willingness to pay for quality will happen here as well.
And when a product has multiple price points, the premium offerings are naturally more susceptible to economic swings and cycles.
Below is a press release that Energize wrote about today’s Volta Charging Series D.
While today’s announcement is a mini celebration along Volta’s EV journey… I have two items to elevate:
The line of success is never up and to the right.Rather, the story arc is a chaotic, meandering menace. To survive and thrive in the market swings of 2020 requires management and employees dedicated to the mission. Volta’s perseverance and growth in 2020 truly reminded me about the importance of mission and conviction. And Scott, Chris and the Volta team deserve a (brief) respite and congratulations for their efforts.
At different stages over the past 3+ years every member of the Energize team has helped with Volta. While Tyler and I are involved in board-related governance, I really enjoy how much team-driven support has gone into the investment. Katie has helped with policy intros and messaging… and pounded the table for increased investment in 2020. Juan has been steadily supporting financial analysis since our original 2018 investment. Tyler is a machine on key metrics, and utility introductions for the data product and Kelly is whipping together press and messaging as you read this. Even in his recency, Mark has helped with our most recent Volta investment. The best companies bring everyone involved along for the ride with a feeling of togetherness, and Volta has done that to Energize.
Energize Ventures is amped to announce its participation in Volta Charging’s $125 million Series D. This funding brings Volta’s total equity raised to more than $200 million.Goldman Sachs acted as exclusive placement agent to the company in connection with the financing. Energize managing partner John Tough will continue serving on Volta’s board as lead director, while principal Tyler Lancaster acts as a board observer.
Electricity will fuel the future
If you – like us – believe electric vehicles (EVs) will dominate the future of transportation, then ubiquitous charging infrastructure is required to power the movement of people and goods. We’ll need EV chargers at businesses, in parking lots and alongside highways, near supermarkets, stadiums and other places we all frequent. Volta Charging is meeting that need by building a free public electric fueling network “at the places you like to go.” How? Volta monetizes the network with advertising and real estate site partners, increasing the value of parking lot real estate and attracting EV drivers to the stores, shops, businesses and entertainment centers where they go.
In a wake-up call of sorts, COVID-19 has exposed that we can live with clean air by reducing or outright removing pollution caused by combustion vehicles. As we recharge our economy, it is more important than ever to accelerate the transition to electrified transportation. President Biden plans to push for legislation appropriating $5 billion to support the installation of more than 500,000 EV charging stations by 2030, according to Bloomberg Green. Rapidly electrifying the transportation sector will create thousands of jobs in construction and manufacturing, while cleaning the air in local communities at the places “you like to go.” We believe Volta is poised to lead as the most capital-efficient and highly utilized EV charging network in the U.S.
Capital-efficient EV charging infrastructure
Energize originally led Volta’s Series C in 2018, doubled down to lead the C-2 in 2019, and is tripling down in 2021 with this Series D. After closely tracking the EV charging market for years, we observed firsthand the challenges associated with building a profitable EV charging business by selling electricity or charging hardware alone. Like its gas station predecessors where most revenue comes from sales of coffee and snacks, the EV charging market was begging for a creative approach to monetize with revenue streams beyond selling electrons.
Enter Volta, whose brilliant business model not only can pay off infrastructure costs, but also drives industry-leading utilization – ensuring the EV charging infrastructure we build is actually used. Volta installs EV charging stations with large digital screens in premier parking spots, gives away electricity, and generates revenue from advertising and site hosts. That revenue has the potential to more than covers the costs of charging equipment capital and ongoing maintenance and electricity, which would provide healthy margins as well.
When Energize first met Volta founders Scott Mercer (CEO) and Chris Wendel (President) in 2018, they had deployed a few hundred EV charging stations in Hawaii and California to prove the model. Their team had grand aspirations to expand nationally, and we had plenty of questions on if and how they could replicate their success in other geographies across the U.S. The EV charging landscape was then littered with the corpses of failed pursuits. However, we gained conviction in the team’s single-minded pursuit to build a scalable, profitable EV charging business. We believed their striking product, superior unit economics and long-term contracts with site hosts were strong competitive moats.
Fast forward to today: Volta operates a network of 1,500 EV charging stations around the continental U.S. – including 200 stations here in Energize’s home base of Chicago. The company recently launched a DC fast charging offering to complement its core Level 2 charging product. Additionally, Volta’s internal software can intelligently site EV charging stations, helping utilities evaluate the impact of electric vehicles on electricity demand and plan grid infrastructure upgrades. Volta truly is a full-stack EV charging network.
An EV charging pioneer reaches scale
The Series D capital infusion will enable Volta to expand their network by installing thousands of new EV charging stations – which we believe will create a ripple effect across the market and broader economy. Volta’s infrastructure will be a key platform to publicize the launch of myriad new electric vehicle options planned for release by automotive OEMs over the next five years. It draws EV drivers to retail locations, increasing revenue at a time when many local businesses are struggling. Hundreds of electricians and construction workers will help build and maintain Volta’s EV chargers, employing skilled trade workers on the heels of COVID. Investing large amounts of capital in Volta’s network will create tremendous benefits for communities and the environment, right when we need it most.
Congratulations to Scott, Chris and the entire Volta team on what they’ve built so far! Energize knows that this is just the beginning in the company’s mission to replace fossil fuel molecules with electrons, helping people get where they “like to go” entirely with electricity.
I prefer writing, but occasionally share some of my market sentiment through audio channels! And so, today I am pleased to share that I spoke with my “Industrial Exit Tracker” partner in crime on his podcast…
Ty Findlay @ IRONSPRING Ventures is the host of the “Heavy Hitters” podcast. The podcast speaks with investors and operators in/around the digital industrial ecosystem.
In this podcast we covered some lessons I learned from the initial energy investing wave. I also cover the internal evaluation parameters for an Energize investment… as well as some of the average statistics for our investments. And perhaps define a new term… “pre-growth”.
I recorded a podcast with Ty Findlay at @ironspringVC to share my pulse on entrepreneurial state of the energy & industrial markets. Lots of nuggets in here how @EnergizeVc works as well… https://t.co/9jApYTdbJf
I first learned about venture in 2009 and quickly became consumed with the idea of integrating my interests between innovation and finance. I would start my day back then like many still do… by opening up avc.com and reading Fred Wilson’s daily post.
His candid and “bring-along’ approach to investing ran counter to my early investment banking experience. I reached out to Fred back then… and for some reason he would always respond with just a small note. He was building the entire venture ecosystem.
Today Union Square Ventures officially threw their hat into a world that I know well: the climate theme. Here is a link to the post and a summary of the theme from Brad:
The USV Climate Fund invests in companies and projects that provide mitigation for or adaptation to the climate crisis. And here is an incredibly succinct summary of what mitigation and adaptation mean to them:
Here is my take: We are ALL so fortunate that some of the absolute best investors AND community builders are bringing their focus to the climate arena.
At Energize we know that you can generate great financial and social returns addressing the climate crisis. And I know that we are all in a better spot by having Brad and USV show up with their Climate Fund. I can’t wait to see the upside they generate for the entire ecosystem. Hopefully we get to work with them 🙂
