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…
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.
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.
Distributed Assets = Better and More Accessible Software
Software that serves the physical environment is usually highly customized. For every $1 of software sold, there is anywhere from $1 to $10 of accompanying implementation and professional services revenue.
Just how much money gets spent in customization?
The average utility has an asset management platform contract that costs $20 million + per year. These asset platforms track everything from substations to big power plants and much of the data is static upon entry. Contracts are usually a baseline price for the software and then tens of thousands of hours of pre-booked professional services. The existing leaders in this asset management space are IBM Maximo, Oracle Primavera, or Infor ERP. These firms offer both the software and the professional services revenue.
Like the long-standing assets they manage, these software platforms are not built for iteration. This is why Energize is incredibly bullish on new asset management platforms like Sitetracker that are purpose-built for more distributed assets. Energy and industrial customers require a new software experience. In the past, critical infrastructure execs looked to solve problems by adding more people and billable hours. The tide is turning. Now the default in the energy and industrial verticals is to attempt to solve a problem with software.
Platforms like Sitetracker (and others) all bring world-class asset management solutions to the new asset bases with an easier onboarding schedule and a lower price-point. These suites are also all built with newer technology stacks allowing for faster iteration and response to customer needs. And the best of these new solutions are enabling applications to integrate with their workflows. Want a predictive AI application for your engine? Here is SparkCognition. How about computer vision detection for QA? Check out Matroid. Worker safety and communications? Beekeeper hits the mark, Just check the box and new applications integrate into field operations. This is the future, happening now. New software giants will take over the asset management vertical.
Better software and faster feedback cycles will drive greater efficiency in our operating environment. It will be a fun space to watch over the coming years.
Yesterday I mentioned how there is an increasingly special group of software companies laying the digital groundwork for the OT market.
With each Energize investment we do our best to put together a framework on market size and near-term opportunity for our prospective investments. Looking back at our Fund 1 portfolio companies there are now a few, clear examples where we underestimated the TAM.
The top 3 consistent themes for underestimating TAM are:
1- Product-led growth allowed the companies to expand into other soft-cost opportunities in the vertical
2- Situational-driven budget expansion as a forcing function to try new products to maintain business operations (COVID, workforce turnover, etc.)
3- Distribution channels built into product accelerate go to market and open up new verticals
Notably, there is no “a-ha” moment from a customer group. Markets get unlocked as small wins compound, team grit persists, and effort-driven “luck”all collide. As the tailwinds for the energy and industrial verticals continue to blow, the winning firms are going to be the ones that continue to iterate and hustle as the market develops.
Tip #7 for Product-Driven Growth: Customer Conferences
Last week I wrote a post about the top 7 ways that start-ups can deliver product-driven growth. That post can be found here. I left out the 7th tip because I felt it deserved more coverage: conferences.
Conferences allow start-ups to create a broader presence. And I am not talking about a closed-door, customer-only conference. The best company-sponsored conferences find a way to associate the company with the broader industry opportunity, not just one particular outcome. Or as Bilal Zuberi and Glenn Solomon taught me “find a way to own the problem, not just one solution.” When a company transcends to represent an industry’s opportunity, its’ centrality drives greater awareness and commercial success. Glenn has a great interview with Nick Mehta, the CEO of Gainsight, where they cover the topic of Building Community in a New Category.
Here are a few nationwide examples:
RSA Conference: (Link here) has a motto “Where the World Talks Security” and is now synonymous with as the cybersecurity conference.
Dreamforce by Salesforce: (Link here) is synonymous with sales and growing a business.
Pulse by Gainsight: (Link Here) is synonymous with customer success.
Pi World by OSIsoft: (Link here) for connecting and optimizing production assets.
And here are three Energize Ventures portfolio companies that are also beginning to employ conferences with great brand and customer results:
Empower by Aurora Solar: (Link here) is now the de facto gathering for the solar industry. Their phrase is: “where solar company leaders, industry professionals, policy insiders, and growth experts come together to share their knowledge, expertise, and insights”
DDC by DroneDeploy: (Link here) is now the largest conference focused on drones and aerial analytics. “DDC brings together a community of innovators from our ecosystem of industries, including agriculture, construction, energy/oil & gas, mining, and more to discuss the latest drone innovations, best practices, and hot topics impacting operations.
Note: this is October 13th and 14th. Register now!
TimeMachine AI by SparkCognition: (Link here) is now the premier AI conferences in the United States. Last year, over 1000+ people came to learn about the transformative nature of artificial intelligence in key industries around the globe, and walked away with actionable insights to accelerate their businesses.
Who else is doing this well in the energy and industrial verticals? And who is adapting well to the digital-first conference environment of 2020?
Yesterday I wrote about the 3 different ways to expand growth in an energy and industrial account. I highlighted that “Product-led growth tends to be the most stepwise in commercial advancements.” Today I wanted to highlight the techniques that I have seen work well in accelerating a software company’s march through the rest of the organization.
Tip # 1: Keep the Sales Exec on the account post-sale for as long as the original sales cycle. Yes you can bring in Customer Success but maintain strong sales presence. A huge mistake I see is when firms immediately hand-off the sales executive. My rule of thumb is that the sales executive should stay involved post-close for as long as the sales cycle itself. So, in a 9-month sales cycle, the sales exec should stick around for another 9 months.
Tip #2: Set up a “Digital Innovation Meeting” 5 months post-sale with the Customer. Ask the customer to include the budget owner and the lead user. From the start-up side, include the sales exec, customer success rep, and a customer-friendly product manager. This is where your Sales Exec’s “nose for revenue” becomes valuable as the sales exec should identify 1-2 other execs in the customer organization to invite. This is why it is important for the sales executive to stay around: their nose will hear recurring names and themes / problems that could be a next product opportunity.
Tip #3: Establish a Customer Council. Most customers in this space are very keen to make sure that they are keeping up with the peerset. Therefore, an early stage firm providing customer validation is incredibly important. Similarly, no single critical infrastructure firm wants to be the only customer you have in the segment. A customer council gets a similar cohort of customers together to share positive engagement examples and aggregate future product recommendations for the start-up. This gathering can be very powerful to drive both new revenues and demonstrate long-term commitment to the relationship. In summary, energy & industrial customers all want to move forward in new technology endeavors together. By setting up a customer council, a startup easily expands the narrative from a product to a broader technology and software partner.
Tip #4: Have Well-defined and Clear Pricing. Expanding your product internally best happens when there is clarity on the boundaries where the current product’s value and associated pricing ends. Being clear on the purpose, features and intra-company user makes expansion easier later in the engagement.
Tip #5: Write up a Master Services Agreement. Most start-ups will rush to close the contract. More mature entrepreneurs will simultaneously explore a MSA. A MSA is contract reached between the start-up and the customer, in which both parties agree to most of the terms that will govern future transactions or future agreements. This usually brings in more senior sponsorship, and accelerates follow-on sales since there are defined parameters around everything from data treatment, press releases, onsite visits, and vendor validation. And a hidden bonus is that if suddenly a budget becomes available near the end of the year, the start-up can be easily contracted for the software opportunity.
Tip #6: Collaborate with the Customer’s Consulting/Innovation Advisor. Almost every Fortune 1,000 energy and industrial customer has a consultant: Accenture, IBM, Deloitte, etc. These consultants have multi-year relationships and usually have proposed a dozen ways to streamline or digitize the corporate’s operations. These consultants also want to see the concepts materialize and identifying what digital solutions are aligned with a start-ups core competencies can lead to a nice expansion. And be sure to identify ways to compensate the consultant with an integration deal or services recognition thereafter.
If a start-up is targeting the energy and industrial verticals, they better be prepared for the 9+ month sales cycle. And when the start-up finally wins the account with a core product, the celebration needs to be brief.
While these customers do tend to have high retention, all of that upfront work earns the entrepreneurs something even more important: the access to expand.
In these asset-heavy markets, the two most natural ways to expand account size are:
Spread across the asset base (and price per asset)
Spread across the employee base (and price per seat)
Major growth can happen simply by executing on these two growth strategies.
But to move to top decile account expansion and retention, the best technology companies that serve the energy and industrial markets actively seek growth from new product development. And SURPRISE: these verticals are VERY receptive to product-driven growth. Why? Going back to an earlier post: trust and relationship alignment is the gold currency in critical infrastructure. If the installer, utility or asset owner trusts the start-up with a portion of their software, the customer is going to default to working with the existing relationship to solve new problems in the organization. The vendor vetting processes are hard and budget expansion within a Purchase Order is easier than a new purchase order! But most of all, trust is established.
When product-led growth occurs, software gradually takes over digitally underserved areas within a customer. This intra-company expansion quickly dissolves the boundaries on any prior, well-defined Total Addressable Market Analysis.
Every businesses in the Energize portfolio is executing on a combination of these three growth techniques: asset expansion, seats expansion and product expansion. Product-led growth tends to be the most stepwise in commercial advancements.
In a post tomorrow I will write about what techniques I have seen start-ups implement to accelerate product-led expansion in the energy and industrial verticals.
We are near the final days of accepting resumes and I have personally reviewed each candidate that has applied. Before getting to the statistics, I want to say that we are absolutely floored by the quality of the candidates. In addition to the incredible brainpower and experience in the candidate base, I am proud to say that Energize’s efforts to expand our outreach resulted in a diverse set of candidates. With this level of quality professional showing interest in accelerating the energy and industrial transition, I have renewed confidence in our ability to make progress.
We received nearly 300 resumes for the Associate roles and over 100 applicants for the Principal position. In the coming days we will be narrowing down the pool of Associates and can’t wait to meet the new potential hires. Upon final review we will share more details, including the diversity metrics encouraged by Chicago Blend.
A company’s ability to innovate can be witnessed by studying the firm’s ability to develop and commercialize new products. Accordingly, select financial analysts look quantify innovation by identifying the new product revenue contribution to a company’s total revenue. “New products” is generally defined as products created and distributed for the first time in the past 3 years.
Using this quantitative framework, a company’s product innovation can be quantified as:
(Revenue from products created over past 3 years) / (Total Revenue)
According to McKinsey, the most innovative firms have a stunning 33% of their revenue from new products.
By definition, nearly all start-ups achieve 50-100% metrics within this calculation. The key is keeping this innovation of new products alive as a company matures. What is most impressive is when mammoth companies like Microsoft achieve >20% success by launching new cloud products that meet a customer need and can be sold through their existing distribution channels.
Many energy and industrial firms fall between 5-15% in this calculation. These lower levels are due to:
1- Asset turnover is when new product sales opportunities become available. But industrial products and energy generation tend to be in operation for decade(s). Changes in generation are accelerating now, though!
2- Hardware distribution is very different than software distribution. And we now know that software has a faster ability to iterate and create new products for customers. 90% of industrial sales tend to be hardware although the core industrial tech firms are looking to change that balance to more software-driven.
3- Systems interoperability requirements of the physical environment act as a breaking mechanism on accelerated product development
As a result, many energy and industrial firms are now looking to startups to infuse new product innovation and software distribution into their organizations. Tomorrow I will begin reviewing the top industrial partners that are looking to inject technology and software innovation into their future cycles.
