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.
At Energize each investor has 2-3 ongoing “deep dives” at any give time. These deep dives are accumulating research projects whereby we are learning from our network and the entrepreneurs- and most usually have at least two professionals collaborating on them. I believe that one of Energize’s greatest assets is our research-based investment discovery.
Mark Tomasovic has been with Energize for over 18 months and he has been working on this “construction tech” deep dive for a good portion of that. Early on in his time with Energize, Mark made the claim “if you are bullish on renewables, you are bullish on construction”. He has since created one of our best deep dives yet and identified a number of potential investments. Maybe even an unannounced one 🙂
I encourage you to read the below, summary, of his deep dive. And check out that market map!
Building a new energy future with guest column from Mark Tomasovic at Energize Ventures
If you’re bullish on renewables, you’re bullish on construction.
To reach net zero goals, more than $4 trillion will need to be invested in renewable energy infrastructure globally by 2030, tripling the current installed base of wind and solar. The US is on track to reach $1 trillion in renewable energy investment in the next decade – but as Thomas Edison said, vision without execution is hallucination, and millions of renewable energy assets aren’t built in a day.
From forecasting cash flow to pouring concrete, the energy transition is a massive construction undertaking. As the world moves from centralized power plants to decentralized wind and solar assets, building these distributed energy resources presents unique execution challenges. Installing DERs across thousands of acres requires all hands on deck from a host of specialized teams not currently set up to scale. Procurement of the materials required for these projects (concrete, steel, aluminum, electrical) will drive a super cycle of demand for inelastic construction inputs. Moreover, historically poor construction labor productivity could hinder the industry’s ability to complete these projects on time.
There’s reason to remain optimistic. Due to COVID-19, construction project stakeholders have increased digital tools adoption. From the lender to the material supplier, construction firms are realizing the potential for software and robotics to increase productivity and improve project margins. Lowering renewable project soft costs can ultimately expedite timelines and increase the number of projects deployed. Construction tech is building the way to the renewable energy industry’s lofty goals.
Market landscape of Construction Tech innovators. Source: Energize Ventures
Project Development Path
Renewable project development requires the careful coordination of several sequential project workflows. From engineering to environmental screening, much of the pre-construction work often occurs in silos – with specialists, consultants, and other “soft costs” (e.g. accounting, filing, legal, finance, etc.) embedded throughout. Each of these soft costs constrain bandwidth and ultimately slows the number of projects deployed.
Renewable project development paths require coordination of sequential workflows, and can be constrained by soft costs.
Improvements in enabling technologies such as LiDAR, robotics, cloud, and machine learning have unlocked novel automation capabilities. Lenders, developers, contractors, and suppliers now have – for the first time – the ability to do more projects with less labor resources. Digital technologies can minimize soft costs by automating many project development workflows, and the output is more renewable energy.
For example, Aurora Solar automates rooftop solar engineering using satellite imagery and LiDAR technology, enabling solar installers to create a complete design and sales proposal using just an address and an electric bill.
Example innovators: Transect (environmental screening), Unearth (satellite-based work planning), Join (pre-construction collaboration), Envelio (interconnection screening), Briq (financial forecasting)
Material Intensity
But pre-construction labor efficiencies only get us to the starting line. And unlike finance, IT, or media, the construction industry relies on physical materials to function. Building an unprecedented amount of renewable energy assets requires an unprecedented amount of materials.
While renewable energy assets don’t consume fuel, these new energy facilities require more upfront materials than their fossil predecessors. Onshore wind plants require 9x the minerals compared to gas-fired power plants, and standard 2 MW wind turbines require 400 tons of concrete, iron, and steel. The majority of the lifetime costs for wind turbines – and the majority of capital costs for all renewable assets – are the materials required to build them.
Sourcing, procuring, and transporting this enormous new volume of materials will be a massive challenge, with the geographically remote nature of renewables increasing the supply chain complexity. Innovations across planning tools, supply chain trackers, and online marketplaces are easing subcontractors’ sourcing and purchasing of the right material for the job. From expediting equipment rentals to purchasing electrical conduit at the click of a button, digital technologies are streamlining the materials management and delivery process and preventing construction delays.
A majority of costs for energy storage, utility scale PV, and onshore wind come from materials. Source: NREL
Productivity
Lagging other industries like manufacturing which have seen significant increases in productivity over the last two decades, construction productivity at the job site has comparatively stagnated.
😵 Every construction project is a prototype. With each new project comes a new assortment of conditions, regulations, contractors, and standards. This variability at the job site has kept construction productivity flat for the last 20 years. In fact, because of these complexities, 98% of megaprojects incur cost overruns or delays.
👨👨👦 General contractors and sub-contractors are often family-run businesses with razor-thin margins. These two factors lead to low willingness to spend the business’ cash flow on digital innovation. Historically, 36% of construction employees have been hesitant to try new tech because they feel as if they’re borrowing from the family’s money.
🚧 Construction is a high-risk industry. Imagine building an infrastructure project and telling the project manager to “move fast and break things.” Construction safety is of utmost importance, and introducing change often introduces new risk. Instead construction firms often prefer to minimize process changes and stay with “the way things have always been done.”
However, with the right product and go-to-market strategy, digital technology can tactically alleviate these headwinds.
📞 Field-based software, for instance, helps improve scheduling and increase transparency between subcontractors on the job site. Increasing communication on-site minimizes the variability that has historically caused construction re-work and delays. A clever startup go to market strategy allows subcontractors to use the software for no cost if they’re working for a GC who’s a customer.
Example construction management software: Procore, Rhumbix, Assignar, Raken, Fieldwire
💸 A second example is reality capture on the job site. Many GCs and subcontractors are averse to new technology because it cuts into their cash flow margin. However, new reality capture tools (like 360 degree photos) can actually help these contractors get paid faster. By documenting construction progress through reality capture devices, the project lender gains a real-time visualization of project progress, and the increased transparency expedites the disbursement of funds to the GC and subcontractors.
Example innovators: DroneDeploy (drone data analytics), Structionsite (construction visualization), Openspace (construction visualization), Doxel (construction visualization)
🦺 Finally, digital technologies can help improve safety on the job. Computer vision platforms help the site foreman automate the identification of job site risks by analyzing real-time video. Machine learning platforms prioritize risk by probability and consequence, enabling companies to tackle the most critical hazards first. Today it is simply unacceptable for workers or civilians to get hurt by a construction project. With today’s degrading US infrastructure and desire to execute projects faster than ever, it’s critical that construction firms characterize and prioritize risks appropriately to ensure that no one is injured on the job site.
The energy transition is a massive construction undertaking. Installing DERs across thousands of acres will require all hands on deck from a host of specialized teams that are not currently set up to scale.
Inefficiencies embedded in planning, engineering, site characterization, and execution have plagued the construction industry for centuries. Digital technologies can help decrease these soft costs and increase the speed of renewable project deployment.
The demand for renewable energy infrastructure will require an unprecedented amount of construction labor and materials. Sourcing, procuring, and transporting these materials will be a massive challenge unless firms change the way they work.
Construction productivity has been stagnant for the last 20 years due to complex variability at the job-site. New software is needed to improve transparency and workflows.
Special thanks to Mark Tomasovic and the team at Energize Ventures, an alternative investment manager focused on accelerating innovation for energy and sustainable industries. Earlier this week, Energize Ventures announced the close of their $330m Fund II. If you’re an entrepreneur building digital technology in the energy, infrastructure, climate, cyber, or mobility space, or looking to energize your careerat a company putting software to work for climate, the team would love to hear from you!
Today is an exciting day for Energize as we are officially revealing that we have closed on $330M for our latest ventures fund! Through this new fund, Energize Ventures Fund II, our team will continue to invest in the best companies accelerating the energy and sustainability movement.
In our first ventures fund, a $165M vehicle closed in 2018, we made investments in 14 technology companies advancing the transition towards more sustainable energy and industry. At Energize, we believe we can accelerate this transformation by providing financial, operational and commercial support to the best digital-first startups serving the energy, industrial and critical infrastructure industries.
The Energize team is able to provide this valuable support because we gain an incredible advantage from our Limited Partners. Our LP base provides the Energize team with an information asymmetry advantage through rare insights into the energy and sustainability transition. None of those insights is as valuable as those we receive from the world-class operators and engineers at our anchor LP, Invenergy. As a global renewables leader, Invenergy helps the Energize team see the sustainable future more clearly.
In Fund I, we were fortunate to get to know dozens of entrepreneurs who are shaping the future of sustainability, and in turn converting our capital support into financial and impact returns. It was only a few years ago when these two were not directly aligned; there were impact investors and financial-first investors, but rarely was there overlap. In today’s market, these characteristics together are positive multipliers for returns, and at Energize we are able to optimize for both.
Looking back, perhaps one of the most important lessons learned is that success in the venture capital industry is determined by human capital. Strong decision-making, diversity of thought, skill and effort are the core inputs to a successful fund. At Energize we have assembled a world-class team of operators and industry experts to help us identify and support our entrepreneurs. Our support comes in the form of strategic guidance, industry insights and access, and commercial value-add. When we went to market for this second fund, our entrepreneurs and co-investors were our greatest advocates. They have shared stories about how we jumped in, delivered customers, and became the “first-phone-call” board member. We are going to deliver the exact same set of values and energy in our second fund.
I’d like to end this note by expressing gratitude to a few important groups:
Thank you to the Energize team. I really mean it when I say “The CEO is second. Your team is first.” We are better today than ever before, and we will be better every year going forward. I can’t wait to see what we do over the next decade.
Thank you to our LPs. We are fortunate to have institutional, corporate, impact and family office investors among our LP base. Each of them selected us to deliver financial and impact returns. Pressure is a privilege and we take the responsibility seriously.
And most importantly, thank you to our existing and future entrepreneurs. Energize is nothing without your passion, vision and execution. Being able to support you in your endeavors is the greatest part of this job. We wake up every day looking to help you advance your missions and will continue to do so for decades to come.
Earlier this year Ford announced a number of commitments to their electric vehicle platform. In addition to over $30 billion in capex guidance, the firm revealed their Ford F-150 electric and then announced a partnership with Sunrun.
Those announcements are exciting, but watching how the firm actually intended to deploy the commitments was the important part. Well just yesterday they released the first wave of commitments with the announcement of a $7 billion investment (alongside $4.4 billion from SK) to build two large manufacturing facilities. The sites will be located in Tennessee and Kentucky and “will cover the entire ecosystem of building an electric vehicle from battery cell production and recycling to a supplier park and an assembly plant. “
The sites are expected to employ 11,000 people in those states. No small figure.
If a few years ago you had told me that Ford – the definition of combustion engine truck – would be building a >$10 billion factory for EVs in Kentucky I would have told you that you were nuts.
But here we. The change towards EVs is happening faster than most think. If you are buying a new car in the next 3-4 years and it isn’t already hybrid or electric, it likely will be the last internal combustion engine vehicle you purchase.
The reason I am so bullish on the accelerated adoption is because there is near perfect alignment between the automotive commitments, environmental benefits, local economies and job creation, federal incentives, and consumer behavior/education. As we head into the next election cycles I expect electric vehicles to get a lot of attention… the jobs creation will begin to evoke traditional Detroit Americana and both sides of the aisle will look to associate with the trend.
When I give talks to our portfolio companies I go through my experiences as an operator. During these talks I hit on 5 main points I learned in my start-up roles. Next week Energize will have a pretty exciting announcement. Looking back and ahead, it feels like three of my own pieces of advice are relevant:
1- Default to thanks
2- Celebrate the wins
3- Aim bigger
I’m excited to follow some of my own advice next week and look forward to sharing the update with you. More to come!
A new scale: $11 billion transmission project to NYC
As seen with Hurricane Sandy and recent summer heat waves, New York City’s power supply is less resilient than needed to serve the local population. And what’s hidden behind the scene is that most of the power for Manhattan is still traditional carbon-based power supply.
In 2019, the New York State Energy Research and Development Authority (NYSERDA) announced a plan to change the resilience and carbon footprint for NYC’s power supply and sent out a RFP to the power / energy community to develop a plan to meet these goals.
Well earlier this week NYSERDA announced the winners of the plan and the figures are pretty astounding. Here is a quick summary:
Invenergy (an Energize anchor LP) won the development proposal with an $11 billion plan
The proposal will deliver over 7.5 GWh of renewable energy to NYC each year
The project combines a 1,300-megawatt, 174-mile underground high-voltage direct current (HVDC) transmission, and the final part of the project will be tunneled under the Hudson River(!)
3.4GW of new wind and solar projects in upstate New York
This investment in New York will deliver 8,300 clean energy and construction jobs exclusively in the state
Any way you cut it, this is a sizable infrastructure investment and is a big win for New York. These types of projects rely upon immense collaboration and capital. The scale of the project is also going to necessitate new digital tools to better plan, build and maintain these new, distributed energy assets.
This project is a great example of our new energy future: traditionally remote /rural renewable assets require a heavy investment in transmission to deliver the renewable power to urban areas. If done properly, this intermittent power supply can be coupled with more local energy storage applications to deliver a more resilient and renewable power supply. I am looking forward to learning from this project and helping identify and support software solutions that help accomplish this lofty plan.
The Computer Vision Market for Energy & Industrials is here: and Matroid is the leader
Our investment into Matroid in Q3 2020 was the culmination of nearly a 2.5-year deep dive into the types of problems that computer vision can help address in energy industrial applications.
In that process we learned that the industry subject matter experts wanted to be involved in the software training – and in fact, their participation in training the machine learning computer vision models was required. We met with about 70 companies over that time period and looked for firms that had a product these SMEs could learn and train quickly. For example, with Matroid a subject matter expert can quickly train a CV model to label what type of rust or hairline cracks in a wind turbine are critical and what are cosmetic. This used to take tens of hours of studying all drone and hi-res photographs.
That extended research process led to our investment into Matroid. (Some pages from our 60+ page research report are below.)
Matroid has stayed incredibly lean (under 20 employees) and has the financial profile of a company 5-10x the size. Why? The company is embodying product-led growth. Founder, Reza Zadeh, and his team have continuously worked to improve the product to ease integrations, lower the cost of the product and build their library of trained models.
One of the bigger surprises for me is how much dealflow at Energize continues to come from Europe. If you know the energy markets, it makes some sense:
Higher incumbent energy prices allows faster payback from new energy products
Greater adoption of EVs and associated incentives in select regions (Nordics) and immense investments in German automotive OEMs
Greater local policies around carbon credits and emissions penalties
Greater use of public transit and other shared economy products
Longer time with competitive energy markets and customer marketing / incentives
Given those characteristics, there are a number of companies in the European markets that are offering products that will soon fit well once North America’s energy profile catches up. This was the case with Nozomi Networks, TWAICE, and Beekeeper. We will probably have around 25% of our investments going forward have headquarters in Europe or the UK.
If you are an entrepreneur in the region looking for access to North American capital, consider us open and interested. We have a number of European co-investors we really respect and hope to do more with them as well.
In the past two weeks Energize has had job offers accepted by 3 new employees. One of them is a new investor and the other two are going to be taking leadership positions on our platform team.
We were 10 people going into last week and will be at/near 15 by the end of the year. In absolute terms, this isn’t a huge jump. But when you frame the growth from our baseline, a 50% growth figure seems meaningful.
One lesson I have taken from past operating experiences is that onboarding new hires well starts in the recruiting process. Given the small (but mighty) size of our team and the impact potential for each new hire, every single prospective hire was given an insight into our 10 year vision, and our “Energize Order of Operations”. We had incredible talent in the recruiting process. The reason we shared some of our internal materials with the potential hires was so we could screen for the ambition, culture and trajectory alignment. Our internal team expects to work together for decades to come. We wanted each new hire to see how and why they fit into the team.
The transparency in our recruiting process helped us really find the optimal individual across skillsets and I can’t wait to introduce them to you in the coming weeks. Each individual brings added intellectual, interpersonal, and geographic complementarity to our team. Hiring is also a signal to the market about the direction of the firm – and I look forward to hearing your feedback on what we are building over here at Energize.
Last week was pretty exciting for Volta. On Friday they celebrated their first day of trading under their new stock symbol, VLTA. I was at the New York Stock Exchange with the cofounders, Chris & Scott, other board members and many of their employees. We were there for the first trade and the closing bell ceremonies. It was my first time at the NYSE and Volta is now Energize’s first public company.
There are a lot of reasons to be excited about Volta’s future. I am excited to be staying on the board of the company for at least the next year. Why? The people. Working with Chris and Scott and the rest of the amazing Volta team is truly energizing.
(And as a note: as a public director I won’t be able to share much more about Volta in my ongoing posts. So don’t take my lack of coverage as lack of interest…!)
