https://www-vice-com.cdn.ampproject.org/c/s/www.vice.com/amp/en/article/v7dezy/why-are-electric-vehicle-companies-worth-so-much-money

Last week I spoke with Aaron Gordon of Vice. He was asking why the market is rewarding the newest batch of electric vehicle OEMs, like Rivian. It is a good article with varying viewpoints. I also commented on a trend that I believe gets overlooked: the convergence of the electric drivetrain and the digital-first nature of these new OEMs. My comments are below:

Some investors also see EV-first companies like Rivian and Lucid as much more than car companies, which can be seen as an advantage. “New mobility firms like Rivian and Lucid are not only EV leaders but also digital leaders,” argued John Tough of Energize Ventures, a venture firm. “They were born in the digital age and have no legacy technical systems to weigh down their platforms. The EV driving experience is superior and cheaper [at least when it comes to mileage and maintenance costs]. And now the in-car entertainment and engagement is also superior to any incumbent automobile company. That combination should enable the new firms to win market share and create more value”” than original equipment manufacturers. 

Tough thinks a few legacy firms will “retain share,” specifically name-checking Ford, but expects most of them “are running an uphill race with a parachute behind them while EV-first firms are sledding downhill.”

Public market valuations are near all-time highs. There are many studies that show how valuation multiples are tied to growth rates. But the public market investor is getting wiser to the cost inputs required for growth.

This week I saw a great report from Guggenheim on the correlation between valuations and growth efficiency.

On page 1, we find that sales efficiency, specifically the magic number (the ratio of new revenue generated to Sales & Marketing spend) has a strong correlation to valuation.  The more efficient the sales motion (higher the magic number), the greater the valuation.  

On page 2, they line up magic numbers across software and find that the median is 0.8x, meaning that on average software companies generate $0.80 of new revenue for every dollar they spend on S&M.  Driving sales efficiency above $0.80 should also drive above average valuation, holding all else equal.

Basic stats but helpful framing as growth-stage companies consider going public.

At least twice a year the Energize team hosts a “demo day”. The demo day is meant to cover a suite of companies that represent a specific theme that our team has been reviewing recently. One of those recent themes is “Building the New Economy” and focuses on software platforms helping accelerate the next generation of infrastructure.

The graphic for the invite, and the select companies we have asked to present, are below. The event is not being openly broadcasted… but as readers on this site I consider my invite to you as semi-private.

If interested in joining the event, please register here.

I saw this below chart posted on a McKinsey report. The image summarizes how 5 key areas will require $2 trillion of capital to decarbonize / be more sustainable.

Totaling the 3 areas aligned with Energize’s investment thesis (electrification, power grid, agriculture) equates to around $1.7 trillion per year.

Most of the capital will go to physical infrastructure. However, at Energize we track the % of project spend going to digital solutions.

That spend number is currently ~2% of total project capital for these more antiquated & analog verticals. We believe that this digital figure will climb to around 4-5% of total budget by 2030.

In today’s numbers this means that the sustainable transition of these 3 areas equates to approximately $34 billion to $68 billion in annual software spend. This is the market opportunity for the Energize investment thesis, and the value for our portfolio to capture.

We appear to be near the end of the negotiations around the latest White House spending plan. The White House released a summary of the bill, and there is a sizable climate provision: $555 billion of the $1.75 trillion plan. The list below shows how that $555bn is spread out between extended tax credits, resiliency solutions, and other areas. Nearly every company I work with will be positively impacted by this outcome. The sustainability tailwinds were already strong and this should provide an even bigger oomph. Renewable generation and electric transportation are going to be major winners here.

https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/28/build-back-better-framework/

Sam is the cofounder & Chief Revenue Officer of Aurora Solar. Sam is an incredible individual with the right combination of humility, drive and mission. While Aurora and the solar industry is flying high right now, the industry was overlooked as recently as 2019. Sam talks about the struggles of early bootstrapping and how the solar market is evolving.

Check out the podcast below with Emily from Powerhouse

There are a few data sources that I closely follow to understand the temperature of the current market in the Energize space.

One of those data sources comes from The Engine as they produce a great annual report on what they call “Tough Tech”…. and no, there isn’t any affiliation. See below for the details on The Engine, how they describe “Tough Tech” and some stats on the current market. The market is hot, to say the least.

What is The Engine?

The Engine is an early-stage venture firm that invests inTough Tech companies commercializing transformative technology that will lead to a healthier population, more accessible and adaptive society, and a more resilient world.

It was conceived of and created by MIT to address the need for sustained support for startups commercializing breakthrough science and engineering, with the potential to solve intransigent global problems and make a material, positive impact on society. Launched out of MIT in 2016, The Engine was designed as an “innovation orchard”, where Tough Tech founders could have access to capital, infrastructure, and
a growing network of stakeholders needed for them to be successful. Together, these three elements combine to create a model around which we
can build an innovation ecosystem that successfully translates breakthrough research to impact.

What is Tough Tech?

Tough Tech is transformative technology that solves the world’s most difficult challenges through the convergence of breakthrough science, engineering, and leadership. While it is often grouped with Deep Tech or Frontier Tech, Tough Tech differentiates itself by centering on mission and purpose.

Tough Tech has the potential for big returns and global impact, through the creation of new foundational economic infrastructure and by enabling the transformation of existing industrial activities.The Engine’sToughTech founders have proven breakthrough science in labs and are taking the next step to bring their technologies to market and impact.These companies will improve human health and agriculture, build resilient systems, enable adaptive infrastructure, and adapt to—and even reverse—climate change.

In Q1 2019 the Energize team led the $23M Series B investment into Jupiter Intelligence. While most of our investments are the result of a deep dive, this particular case was more instant conviction in the product and market timing. The company also had the major benefit of an incredible team and serial entrepreneur, Rich Sorkin. Jupiter intelligence is a software platform that helps financial services firms, critical infrastructure firms and governments identify climate impact on a portfolio-wide or asset specific (down to the meter) granular level.

Since our investment the company has grown tremendously, and the demand for the product is expected to grow for decades to come. We participated in this round and also worked with one of our anchor capital partners, CDPQ, to further capitalize the business for the next stage of growth. This is the first investment we are executing alongside the CDPQ ISI platform and I am excited to have such an emblematic climate technology company be the first data point in our program.

The press release is below:

Jupiter, the global leader in climate analytics for resilience and risk management, today announced a $54M Series C Financing, co-led by Clearvision Ventures and MPower Partners.

Jupiter now provides analytics to 30 companies in the Global 2000, U.S. Department of Defense and FEMA to understand the impact of climate change on their physical infrastructure and supply chains, risks to financial portfolios, and vulnerabilities to human health and safety, and to protect over ten billion dollars of physical assets and more than a trillion dollars of financial assets.

The world’s largest asset managers, banks, chemical companies, cities, consulting and accounting firms, data centers, defense agencies, emergency managers, energy companies, insurers and reinsurers, pharmaceutical and resource companies, and wine producers rely on Jupiter’s advanced technology and climate science.
The new investment will be used to accelerate the company’s rapid expansion in sales and support to meet increasing customer demand, especially in the 20 sectors of the global economy where Jupiter is already the leading supplier. Jupiter also will use the funds to accelerate investment in R&D to deliver more value to Jupiter’s current and future customers, who have subscription access to nearly 150 trillion data fields, produced using cloud-based supercomputing.

“Investments from leaders across the globe, representing every sector of the economy, reflect the growing recognition that organizations need powerful analytic tools to invest in resilience to reduce the impacts and risks from climate change,” said Rich Sorkin, Jupiter’s CEO. “The profound challenges from climate change are multiplying and the world is rapidly awakening to an ever-worsening reality. With this investment, Jupiter will more quickly and broadly serve increasing global demand for our best-in-class climate risk analytics.”
The biggest new investors in the funding were CDPQ, a global investment group, Japanese
venture firm MPower Partners, Clearvision Ventures, and one of the world’s largest university
endowments. All of Jupiter’s major existing investors—DCVC, Energize Ventures, Ignition
Partners, Liberty Mutual, MS&AD Ventures, QBE Ventures, and SYSTEMIQ — also
participated.

“With its technology, Jupiter has become a market leader in climate risk analytics, helping businesses in various industries such as asset management, banking, energy and governments better understand and address the impacts of climate change,” said Geneviève Bouthillier, Managing Director, Private Mid-Market Companies and Stewardship Investing at CDPQ. “As an investor determined to direct more capital towards sustainability opportunities, we are delighted to support Jupiter’s growth while delivering returns for our clients.”

“Too many organizations are still ill-prepared for the accelerating effects of climate change. Jupiter continues to attract outstanding people and financial resources to help minimize the worst impacts,” Sorkin added. “Our Series C funding is the latest milestone in Jupiter’s growth.”

I had some fun yesterday going on TV to talk about Energize and our new fund. We covered a few key items, including why we believe great returns and impact can be achieved investing in the digital backbone of next generation infrastructure.

We highlight our portfolio, and our LPs… with a special callout to DroneDeploy’s work in the energy transition. Give it a watch!

The video is in the link below.

We joined @Cheddar Climate to talk all things Fund II – our latest milestone toward decarbonizing energy & sustainable industries. Catch the clip here to hear Managing Partner @JohnJTough discuss why he’s betting on digital tech right now: https://t.co/lzfoPrrubK

— Energize Capital (@EnergizeCapital) October 20, 2021

As a thematic rather than regional investor, Energize doesn’t invest in manny Chicago-based companies.

In fact, we have more European investments than midwest investments. But there is an exciting momentum building in Illinois around the electric vehicle boom. In addition to a number of manufacturing sites (Rivian, Lion Electric) the state is trying to enable the technology and supply chain partners to make Illinois home. (Crains: Pritzker pushing tax incentive for EVs)

Energize has an investment in the leading EV battery analytics company, TWAICE. The firm is based in Germany and with our support, is now opening their North America HQ…. in Chicago! I believe Chicago can be an epicenter for EV-related technologies and we will continue to help our portfolio grow here.