Category: Growth & Operating Insights

The New York, New York Rule to Revenue

The New York, New York Rule to Revenue

Portfolio and revenue diversification has its’ documented benefits.

When covering revenue diversification, most teams focus on removing the downside risks: revenue concentration, regulatory impacts, competition, sales cycles, etc…

BUT, there are two hidden benefits to revenue diversification that are not as well covered that I look for when evaluating a business. I will cover those topics today & tomorrow.


One hidden benefit for industrial technologies that serve the critical infrastructure verticals is how customer diversity grants a start-up exposure to win higher margin contracts. Here is my incredibly simple approach: the higher the margin available in the customer’s underlying product, the more investment that prospective customer can make in advancing IT/OT technologies. This approach is naturally consistent with the “value based pricing” blog I wrote about last month. The driver to this opportunity is the forcing function of lean product development and efficient distribution in the lower margin industries that subsequently creates greater cumulative profitability elsewhere.

If an industrial technology company is forced to make their unit economics work for the narrow-budgeted, low margin commodity provider (read: power, utilities) then the margin available to deliver that product to higher margin verticals should allow for materially greater profits. (competition pending!) These lower margin industries are a bootcamp to focus on delivering the highest value at the lowest price with an efficient go to market strategy. I joke that this is my Sinatra “New York New York Rule” and that ““If you can make it here you can make it anywhere” I insist that start-ups increase pricing when going to these other verticals… they deserve it!

The site, Ready Ratios, shows gross margin by industry. And these directionally line up with my broad strokes interpretation below:

Show me a technology start-up making good margin in agriculture and power and I will show you an excellent business in the other verticals.

All Energy Transition Projections are Wrong

All Energy Transition Projections are Wrong

Energy analysts are bad at predicting system-wide changes. Every year the Department of Energy and other agencies vastly underestimate the new energy resources being energized across the country.

The same incorrect predictions are now also occurring around electric vehicles. The graphs below on EV adoption projections shows how key industry research groups are now also incorrectly predicting EV adoption. Each of these groups have to keep re-upping estimates every subsequent year.

The main entities that predict these levels include: OPEC, EIA, and BNEF. Of course, some of the oil & gas projections should be taken with a grain of salt as they are scared about this transition! Knowing that, as seen below, there is a big difference between the estimates of these groups!

Big, growing markets with a range of projected outcomes allow for contrarian operators and investors to create large businesses with great returns. Energize is energized about this opportunity.

Power Down, Episode 0 – A Casual Approach to the Energy & Industrial Transition

Power Down, Episode 0 – A Casual Approach to the Energy & Industrial Transition

I recently recorded the first (hopefully of many!) episodes in a video series called “Power Down“. The idea was hatched between Kevin Stevens of Intelis Capital and me as we wanted to show a more casual approach to discussing the topics accelerating the energy transition and industrial technology movement. We intend to add a 3rd individual to many of the recordings, and if you would like to join, reach out!

Kevin and I go way back as we worked together at Choose Energy, the (then, maybe still?) largest US online energy marketplace backed by KPCB, and ultimately acquired by RedVentures. I will discuss more about Choose’s growth in the future.

On this first video, there is no incredible editor…. the lighting is poor, the sound quality is dubious at times, but I feel the content quality is pretty good.

Our topics in the energy and industrial transition will cover everything from technology, to business fundamentals, the financing markets, exits, general market trends, predictions, and lessons learned.

The video is below and the clip I highlighted starts when Kevin and I talk about what business model changes are needed to enable faster innovation. Here is a summary of these first few minutes:

“we need full alignment between consumption and the business model. It is really hard to create a transformational business when there is deflationary pricing at the top line… people need to start thinking about “what can we do with this excess power and we can start pricing electricity based on value and not some arcane rate…”

Kevin called this “Episode 0” because it really was something we did on a whim, and we would love feedback. What else do you want us to cover? Who else wants to join?

Calling it: OSIsoft is the Industrial Tech Deal of the Year

Calling it: OSIsoft is the Industrial Tech Deal of the Year

I am calling it: OSIsoft’s acquisition by Schneider Electric controlled AVEVA Software is the industrial technology deal of the year.

While I am sure that there is industrial technology M&A happening as you read this… and there are some great names like ChargePoint and Desktop Metal are in the rumor mill for a SPAC, it will be hard to top the returns profile that OSIsoft generated for their select investor group.

The structure here will cover a brief summary of the company & product, financing history, and why AVEVA is an especially interesting partner.


OSIsoft was founded in 1980 by Dr. J Patrick Kennedy, a legend in the industrial technology space. 40 years ago. Older than the author and many readers of this post. The company’s core product is PI Systems, a data historian. The PI historian is a data capture, relay and management platform purpose-built for the physical operating environment. If you are looking for a product with incredible retention, it is hard to find a “stickier” one in any market. This is why:

Data analysis primarily occurs on high value assets with extended life-spans: 10-40 years. And once a historian platform is selected it usually lasts the life of that asset. AND when the next asset is installed, of course the operations team at the industrial entity is going to select the same historian so that there can be back-end consistency of data management to allow for simpler data analytics. this system perpetuates such that OSI claims to have 95% of their original customers and be extracting data from over 19,000 industrial sites. This embedded product stickiness is why the company has been able to command high prices for their product and generate material profit.


Grade: A+ for founder, A for investors, B for SoftBank

Dr. Kennedy’s cash management at OSIsoft is the talk of legends. He ran the company on its’ own cash flow from the earliest of days.

Investment #1: Summer, 2011

It wasn’t until summer 2011, over 30 years after starting the business, that Dr. Kennedy decided to bring on external capital. At the time, his business was already generating around $200M of revenue and a sizable EBITDA profile. During the raise, he sold 30% of his company to TCV and KPCB’s Green Growth Fund in equal segments.

He executed a capital raise at a $450M valuation (likely for secondary purposes) by selling 30% of his company for $135M. The company was just about to cross the $200M revenue benchmark and was likely already very profitable. As shown below, this ~2x revenue multiple was a great entry point for the investors.

Investment Event #2 PE Growth Event to SoftBank

In May 2017, SoftBank’s Vision Fund came knocking. With the business now generating around $350 in revenue, SoftBank paid a whopping $2.9BN entry valuation, or ~8x revenue . During this event, the earlier TCV and KPCB investors exited at a very handsome return profiles: assuming minor dilution, back of the envelope calculates show the growth equity round executed by the earlier investors produced greater than a 6x return in the 6 years of holding the business.

Today’s Exit: AVEVA acquiring OSIsoft

Metrics released today show that the business is now at $500M in Trailing Twelve Month Revenue. This means that the company is still growing about 10-15% in topline revenue per year, an impressive figure in the industrial technology space for such a sizable profile. That results in a ~10x revenue multiple.

And as suspected, the company has a very healthy 30%+ EBITDA margin.

This exit produces a mammoth return for Dr. Kennedy, who still owned a majority of the company. SoftBank gets to generate an approx. 1.7x return, which is not too shabby for 3 years given the absolute dollars that the Fund was able to invest into OSIsoft.

The FIT with AVEVA

Grade: A-

Aveva is a global leader in industrial software. The company is undergoing a transition from a mostly perpetual sales model to a recurring sales model. While this transition is never easy, Craig Hayman is considered a world-class operator in the space. AVEVA has an embedded $700M software business and the combination of AVEVA and OSIsoft is very powerful as AVEVA already has a few data historians within their technology suite.

In fact, AVEVA now has three historians, each in complementary verticals! This means that AVEVA is now the de-facto historian across of nearly every asset industry. The only true competitors outstanding now would be Bazefield and GE.

AVEVA’s three different historians:

#1 OSIsoft: primarily serving the process industries: oil & gas, chemicals, pharmaceuticals, etc.

#2 (assigned from Schneider Electric) Wonderware: broad application with an emphasis on post-capture analytics

#3 (acquired through M&A), InStep’s eDNA product. eDNA is also an enterprise-based historian primarily used within the utility and power market.

While I suspect AVEVA’s marketing team will likely want to simplify branding, the fact is that each of these entities has strong brand presence within their specialty verticals. And this product stickiness and brand strength should allow AVEVA and OSI to maintain market share and pricing defensibility going forward.


Top marks for investor returns and capital efficiency. Dr. Kennedy walks away with over $2.5BN in proceeds and was very capital efficient along the way. He has the highest capital efficiency marks of any company in our industrial technology data set. (releasing that in a few days)

AVEVA and Schneider Electric win control of a crown jewel in the asset-heavy market. If you believe that data and data management is a requirement for the next generation of industry, then OSIsoft is an invaluable asset and the price is fair and consistent with other elite assets currently in the software market.

The most important subtly to the story is how this is a 40 year success story. In the energy and industrial markets, there are no overnight successes. These customers buy slowly because software gets applied to real, operating assets. Mistakes cannot be made. Aligning a capital table with this reality is key. And if you allow results to compound for 40 years, good things tend to happen!

Choosing the Correct Value-Based Pricing Framework

Choosing the Correct Value-Based Pricing Framework

In the low margin energy & industrial verticals, value-based pricing is a requirement. The usual $/seat pricing accustomed in software industry doesn’t work as personnel levels don’t necessarily map to the value of an operating asset. (Jake Saper at Emergence’s post about AI killing the per seat model is very relevant here!)

Learning of this nuance, many start-ups scramble to create/defend a pricing scheme and default to: “this is how much money we will save you.” Using this savings approach means the software vendors usually tie their own budgets to the operations or maintenance line items. For most markets, framing a contract’s value to an O&M budget is a huge mistake as the cost curves for the (non-regulated) energy and industrial verticals are deflationary. (h/t to Shayle Kann for helping frame here)

If a software start-up serving the industrial or unregulated energy market pegs its’ value/revenue to a declining maintenance figure, the start-up’s pricing will fall at least as fast as the cost curve. And while it is natural to hope for an increased install base to outpace the $/asset declines, history shows the budget will face intense renewal scrutiny.

Choose The Better Value Based Pricing Structure

For the majority of start-ups serving the industrial, IoT and unregulated markets, I highly recommend you focus your startup’s marketing narrative and value-based pricing structures on shortening time to revenue and/or increasing certainty of revenue. POCs tied to revenue are prioritized over solutions tied to savings – even when savings are material. If a startup documents an ability to bring forward revenue for a customer, the approval process and integrations suddenly accelerate. Why? New revenue is rewarded at slow-growth F500 companies and rising corporate executives are willing to stick their neck out more for revenue, than savings.

Topline alignment means that growth is good for both parties and the software subsequently faces less pricing pressure at renewal. Here are a few examples of areas that the Energize team believes software can help accelerate revenue:

In summary, in the energy & industrial space, make your topline tied to your customers. It’s more fun, anyway.

Follow-up 1: there will be a separate post on framing value for the regulated energy markets

Follow-up 2: There is a specific exemption to the rule I shared above on selling to industrial and unregulated energy. And I will be covering it tomorrow!

Why BD Partnerships work so well in Energy & Industry

Why BD Partnerships work so well in Energy & Industry

Misaligned incentives make it hard for senior corporate executives to fully lean into championing any new software solution or digital technology. Here is a simple risk/reward matrix for the start-up and enterprise champion:

What is the biggest driver for the delta between the risk/reward of a start-up contract between the two parties? Time.

In the early stage environment the most rewarded moment is the close of the customer sale. In the corporate environment, the winningest moment is potentially years later when the product is implemented and Return on Investment is documented.

Given the big difference in time between the definition of success , employee tenure becomes the 🔑 issue: a Fortune 500 energy, utility or industrial company tenure is between 5-10 years, while a SV startup employee is approx. 2 years.

When an internal champion at at Fortune 500 energy & industrial company is willing to take a bet on a startup, he or she is looking to see if their counter-party will be around for a multi-year engagement. Product implementations on operating assets and systems are complex and require disparate integrations. Unfortunately, most large companies now have horror stories of identifying a start-up only to see the relationship manager … or even the entire company… vanish overnight.

With that scar tissue, most F500 now require channel partners to be the bridge and systems integrator for new technology products being added to their network. Big companies add these partners to buffer against the less stable start-ups. Therefore, I recommend that commercializing startups employ a few tactics to remove the mismatched TIME risk most corporates feel:

  • Build BD and channel partnership relationships early
  • Develop implementation and customer success teams early to show your you are committed to the long-term relationship
  • Feed your channel partner: bringing potential customers accelerates a partnership
  • Develop co-branded Go To Marketing stories with clear RoI

2 Sucker Sales Fails New Execs Make in Energy & Industry

2 Sucker Sales Fails New Execs Make in Energy & Industry

I see startups make repeated mistakes when they scale in the energy & industrial verticals. Here are a few sales “No-Nos” to avoid…


Energy and industrial firms broadly act like critical infrastructure providers. These firms are process oriented. Most of these companies thrive off of hierarchy, structure and process. Budget in these verticals for new technologies does not magically appear over night. If there is going to be budget for a real contract, there ABSOLUTELY will be budget for a Proof of Concept. If you are developing your sales pipeline and cannot identify the budget with your champion, move along. (And yes, I recognize that in some other industries a non-paid PoC can generate a contract more easily) In my decade within the early stage energy & industrial market, I can count on one hand the number of free pilots that expanded into an enterprise deal.

#2 Do NOT move your cloud provider for the promise of customers or a re-seller agreement.

I have seen some very lofty customer introduction and reseller promises from the cloud divisions of Google, Amazon and Microsoft. Every one of these firms will say something like this:

“Jeez, we have a Fortune 100 energy company that is asking us to help with their broader tech adoption. Those firms trust our recommendation. We would love to make that introduction for you, but you have to be on our cloud…”

These statements from the cloud sales execs are effectively hollow bribes.

And early start-up execs fall for it, subsequently invest a huge amount of money into transitioning their cloud provider… only to get crickets. You, Mr or Mrs. Start-up executive are the customer, not the provider. Unless they promise you years of free compute, stay away from these discussions.

18 months between rounds doesn’t work here

18 months between rounds doesn’t work here

Early on in my venture career I asked a very experienced VC investor why we were guiding our portfolio company executives to towards an 18 month runway between rounds.

The answer I received was that 18 months is the approximate time it takes for a company to hire and develop a team, and run two successful sales cycles. The reason? Two successful enterprise sales cycles should show market adoption, new feature feedback, cohort growth and, of course, revenue growth and early signs of operating leverage. With success, a company’s progress and team development over the 18+ months de-risks an investment. And the future upside and opportunities available to the company should be more clear, resulting in a higher valuation.

Unfortunately, this timeline prescription doesn’t fit well when a technology company serves the energy & industrial customer base. The fact is that these industries have longer sales cycles: usually around 9-12+ months. While accounts are ultimately bigger and worth the acquisition investment, the sales cycle is deliberately slow. Critical infrastructure firms use a slow decision process as a feature, not a bug. Everything has to work, perfectly.

Given these sales cycles and the need to better curate a startups go-to-market team, I generally recommend a minimum of 24 months runway between rounds for our investments. And for companies early in commercialization, I recommend that the execs slow down sales hires until more of the narrative and value proposition is quantified and marketable. These industries are slow to adopt technology, but once a solution proves value, the broader industry rushes to adopt the solution. And that ultimate payoff is worth the extended runway.

Hit Refresh, Book Notes

Hit Refresh, Book Notes

Over the holiday I wrapped up a number of books that had been piling up on my bedside table. Hit Refresh was one of those books and I am glad I read it. The main reason I enjoyed the book was the underlying sense of optimism and progress that Satya implies through his vision of the future workforce and broader society. I similarly enjoyed his open willingness to revisit core principles and identify which foundations (people, culture, products) to support to enable the next chapter at Microsoft.

Here are some quotes from the book that I highlighted…

On leadership & vision

“A leader must see the external opportunities and the internal capability and culture – and all of the connections among them – and respond to them before they become parts of the conventional wisdom”

“The view your adopt for yourself profoundly affects the way you lead your life” – Dr. Dweck, Mindset: The New Psychology of Success

“… compete hard, and then equally celebrate the opportunities we create for everyone. It’s not a zero sum game.”

On Trust

“Consistency is better than perfection”

“Consistency over time is trust” – Jeff Wiener

“The key to cultural change is individual empowerment”

“Learning to fly is not pretty, but flying is”

On Societal Change

Engelbart’s Law: “…Our ability to improve upon improvements is a uniquely human endeavor….”

“Economic improvement is centered around the intensity of the adoption, not just the presence or availability of the technology.”

Edward Conard: The Upside of Inequality…. inequality ultimately leads to faster growth and greater prosperity for everyone. Investors wait for good ideas that create their own demand for properly trained talent needed to commercialize ideas successfully. He sees two constraints to growth: an economy’s capacity and willingness to take risk and to find properly trained and motivated talent.

As machines replace labor in some tasks, firms will be incentivized to create new tasks in which humans have a competitive advantage. “Although automation tends to reduce employment and the share of labor in national income, the creation of more complex tasks has the opposite effects.” – Daron Acemoglu, MIT economist

“Business is humanity’s most resilient, iterative, and productive mechanism for creating change in the world.” – John Batelle

2017: Transition & Acceleration

2017: Transition & Acceleration

2017 was a year of change for me. I started out the year as Chief Revenue Officer at Choose Energy, culminating a 4.5 year role with the company that began as the first non-engineer in 2012. With the sale of Choose Energy in Q2 and my responsibility with the company melting away, I experienced a brief, but noticeable emotional lull. I had (re)started my dream job, working in venture capital at the intersection of technology and industry with the Invenergy Future Fund but I was missing the action of day to day operations. Working at Choose Energy with world-class employees and a truly unique entrepreneur was special, and the loss of that continuous engagement affected me. I hope to work with each of them again in some way during my career or personal efforts.

And just when there was a lull in my usual intensity, my new team at the Invenergy Future Fund of Michael, Amy, Juan and Carmeanna got me revved up for the truly unique opportunity we had ahead of us. We are now in the early stages of executing our plan to be a world-class venture firm focused on software companies in the energy & industrial verticals, and the machine is really starting to hum. I am increasingly confident in our unique value add as operators, industry connectors and EQ-aware professionals. The combination will take years to prove out but I like our foundation.

Part of our Fund’s momentum includes two new investments we made in the second half of the year. While the investments have not been formally announced, I can’t wait to share more about each of them. The management teams at both companies are elite, focused on driving industry improvements through products that are already operating in the broader industrial environment. The executives and the problems they are solving motivate me every day to find ways to be helpful to their existing operations and find more companies of equal excellence.

2017 also marked my first full year back in Chicago. Being closer to family is everything I hoped for, and more. The family connectivity, coupled with my amazing wife enables a balanced approach to personal and professional growth.

Overall, 2017 was a blessing both for the end of one personal chapter as well as the beginning and acceleration of another. I’m thankful for those around me and excited to work with my expanding team and network to enable and support continued success.