A well-known banker in the space reached out after seeing a few of the Energy Transition M&A posts. We talked about the current market trends as well as likely / active engagements. Here are a few key notes from that call:
1-Potential Acquiror Market has broadened: In a recent M&A process there were >25 management presentations. This was because potential buyers for the asset came from many different backgrounds:
Energy management firms
Industrial technology giants
Progressive utilities
Generalist software companies
The normal firms participating in M&A over the past few years have been the energy management firms and industrial technology giants. But, the more progressive utilities showing up looking for ways to expand their own businesses is a NEW addition. And for avoidance of doubt, the presence of traditional software firms playing in the energy transition space is VERY RARE. Over the past decade only a few software firms have acquired an energy transition company- with the headline acquisition being when Oracle acquired OPower.
2- Everyone now understands SaaS: the banker claimed that in years past he would have to give a presentation to the “older school acquirors” about why SaaS gets valued at a premium and to share about the multiples. While education needs to occur to share the new heights of SaaS multiples, the industry execs now appreciate the delta between perpetual sales and SaaS sales.
3- Industrials Pay Premium for Standalone Scale: The largest industrial technology firms have big balance sheets. And despite a lot of public clamoring about wanting to be acquisitive to better enter the software market, these industrial giants tend to only pay the true SaaS multiples when a business reaches scale. Why? A big concern these giants have is that their corporate culture may hinder continued growth of the target. So the M&A heads want these businesses to stand-alone and be a pillar for future M&A opportunities themselves. This usually means a revenue base of at least $50M for an industrial technology firm to get active in the software market. And even when these industrials get comfortable with M&A rarely is a multiple > 10x revenue.
I imagine we will continue to see more “non-traditional” firms be active in the energy transition M&A market.
As a front-row observer to the energy transition, I have the fortunate position to see which firms are making positive strides to enable and ride the movement. While I mostly focus on the early stage environment, I also get to see which incumbent firms are creating pivotal positions in the transition. Microsoft is one of those well-positioned incumbents becoming the technology backbone to the energy transition and industrial technology movement. The how and why was written on my recent Forbes post.
Microsoft is the operating system for the desk worker at most energy and industrial firms. Mac computers are rare and ruggedized PCs bridge the office and the field.
Based on a flurry of recent press, it is evident that Microsoft is interested in expanding their default status in the white-collar cubicle to dominance out in the operating environment. Microsoft’s approach to taking over the energy vertical is much like the technique of the earliest oil renegades: the wildcatter.
Why is Microsoft refocusing here NOW?
A decade ago the cost to digitize and connect remote operations was prohibitively expensive. A decline in sensor costs, networking costs and edge compute costs now allows edge production environments to be big generators of data and consumers of compute. Just as wildcatters speculatively prospect for hidden or previously unloved assets, Microsoft is revisiting the O&G space to see if they can expand technology sales to the new field opportunities. And of course, Microsoft is not alone in this land-grab mode. Like the wild west, the physical operating environment provides sizable greenfield environments and all of the cloud and compute giants like Microsoft, Google, and Amazon are aiming for the new revenues. While the battle will be fierce, Microsoft is making a big land-grab right now.
The Wildcatter: Microsoft + Energy & Industrials
Microsoft represents a story of resilience that the energy and industrial vertical wants to embrace and believe. At one point, Microsoft was written-off as Google and Amazon charged ahead into the enterprise. And yet, under Satya Nadella’s leadership, Microsoft has roared back in the enterprise segment and is solidifying and expanding its’ technology footprint in these asset heavy verticals. Analog firms love this Microsoft story and appreciate the strength of the logo.
Microsoft is employing a consistent technique to expand is these areas:
Step 1: Microsoft acquires a PPA or makes a purchase commitment to get a conversation going with the energy company
Step 2: Microsoft closes the much more lucrative cloud and software contract by promising to infuse “digital” into the more analog firm
Here are the examples:
Microsoft + Shell: Microsoft agreed to purchase power from a Shell-developed renewable energy site. But most importantly both companies agreed to a technology JV, where Shell will utilize Microsoft compute services to develop artificial intelligence technology that helps Shell access real-time data insights and improve the efficiency of their operations, leading to lower emissions. Microsoft also committed to offer new digital tools for Shell to deliver to Shell’s own customers.
Signal: Shell is doubling down on Azure and Shell’s customers are also encouraged to use Microsoft Azure.
Microsoft + BP: Microsoft agreed to purchase power from a bp-developed renewable energy site. (Can you see the trend!) Alongside this PPA, bp and Microsoft agreed to “co-innovate” between Microsoft’s digital expertise and bp’s knowledge of the energy markets. These areas include smart cities and smart consumers.
Signal: BP is doubling down on Microsoft Azure
Microsoft + ENGIE: Microsoft purchased 230MW of utility scale wind from ENGIE. And ENGIE responded by committing to running their entire 15,000 MW energy portfolio on Microsoft’s Azure cloud services. That is a massive win for Microsoft’s cloud product.
WILDCATTERS
Signal: ENGIE worldwide is doubling down on Microsoft Azure
Microsoft + Rockwell: Rockwell is taking steps to build better software solutions for their energy and industrial customers. The firm intends to deliver these products by expanding a partnership with Microsoft, the dominant existing technology partner in the industrial vertical. Case in point: just this week the two firms announced a 5 year co-development effort to deliver all new Rockwell industrial technology applications to customers through Microsoft Azure.
Signal:Rockwell is doubling down on Azure and Rockwell’s customers are also encouraged to use Microsoft Azure.
Conclusion
In the coming quarters I expect we will see many more partnerships between Microsoft and the stalwarts of the energy and industrial verticals. I believe that Microsoft will have an outsized influence on the energy transition and industrial technology movement. Microsoft is leveraging their IT strength into a stronghold on the OT environment and locking in customers that will depend on the Azure cloud for decades. Much like a successful wildcatter, these accounts will be paying dividends to Microsoft well into the future.
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.
Ty Findley covering Industrial Tech on The Full Ratchet
I am a big fan of Ty Findley and the work he is doing as a Managing Partner of IRONSPRING. Ty was recently on an episode of Full Ratchet with Nick Moran. On the episode Ty referenced some of the work on industrial technology exits… and gave me one of my better nicknames “Digital Industrial Partner in Crime!” The content in this episode is excellent.
And the link to the M&A statistics that Ty and I put together can be found here.
I encourage you all to listen to the podcast. In the content you will hear Ty’s wisdom in knowing the nuances of the industrial market. He also reveals his passion for entrepreneurs to make the correct decisions around capital efficiency and go-to-market strategies.
There were two specific segments I really enjoyed and highlighted those below:
“…sympathetic as to why it is so challenging to sell technology into these industrial markets… there is a lot at stake in the OEM production environment. I try to put myself in the customer’s position when evaluating how they will purchase the technology. Everyone jokes about buy SAP before you buy a start-up to keep your job.. but think of it this way: if (an incorrect deployment) of new technology inhibits a 737 production line, it is less about that one airplane… but you are actually stopping GDP that was supposed to fly because of that slip-up. Need an appreciation for the complexity “
“If a founder from the beginning takes the right capitalization strategy and is capital efficient in tackling these industrial markets… the markets are huge… and massive opportunities to drive value to customers and Limited Partners”
And finally, this phrase shows just how important it is to keep investing in these hard-tech businesses:
“Can’t afford to leave these industries behind in tech, they matter too much“
Go listen!
Begin with the end in mind. Don’t get caught up in the hype of traditional Silicon Valley.
The purpose for this series is to highlight the traditional industrial technology firms that are re-accelerating growth through M&A. I will be covering 3 firms, and there may be an encore. Earlier this month I covered the first of the firms, Rockwell Automation. This week I am covering… Honeywell.
Honeywell is a Charlotte, North Carolina based industrial conglomerate with over 113,000 employees across the globe. The company has $37 billion in annual sales, 33%% gross margins, and approximately $8-9BN in EBITDA. Those financials earn the firm a market cap of $113 billion dollars and enterprise value near $120 billion. This means Honeywell trades at 3x revenue, and 14x EBITDA. Here is their 2019 Investor Presentation.
I really enjoyed researching Honeywell for this process. Honeywell is on a journey to become a software industrial. Quarterly reports, annual reports, press releases, hires and new product lines all point to an incredible investment underway to help Honeywell change their business model. Switching a primarily hardware firm to embrace a software product and distribution model is a herculean task. But, everyone remembers Hercules… so it only takes one. Here is why I think Honeywell can pull this off: the standing up of an independent Honeywell Connected Enterprise (“HCE”), and the launch of the core product Honeywell Forge, the Enterprise Performance Management suite. Given how intentional Honeywell management is in noting that their growth and M&A will come from within HCE, I will be focusing my M&A / inorganic growth review therein.
This one image is the best way I can capture the current state of the organization:
Honeywell Corporate Structure Focusing on Digital Innovation
Aligned and Simplified Business Units: 4/5
Clear M&A Goals, with Recent Examples: 4/5
Clear Minority Investment Goals, with Recent Examples: 5/5
Aligned & Simplified Business Units
Honeywell has 4 business units with a diverse set of customer types that fit within the groups. The four divisions are:
Aerospace
Building technologies
Performance Materials & Technologies
Safety & Productivity Solutions
The firm also has a cross-functional division, Honeywell Connected Enterprise, that delivers digital products and services across the entire organization.
As seen in the first graphic, the Honeywell Connected Enterprise is comprised of HW/SW products, and exclusively software products. At the core of HCE and the software effort is Honeywell Forge. Many industrial firms look to create a central platform to aggregate technology solutions. Honeywell is taking a different approach with Forge: it is a domain-specific, low-code cloud operating model built to be system and OEM agnostic. The cloud suite simplifies data extraction from assets, people and process and uses a combination of proprietary AI/ML mechanisms and partner applications to solve business-specific problems. In the past, industrial firms have tried to take a “one platform fits all” approach. HCE, however, is accepting domain-specificity and the power of the Subject Matter Expert. And accordingly is delivering a model and supporting applications tailored to the business outcome.
While this focus on creating low-code, cloud, and domain specific industrial models may seem obvious, the fact is that each of those items (low code, cloud, AI/ML) are all “why now” events that simply couldn’t be been combined in an economic fashion even a few years ago. And this conviction, it appears, is where a lot of M&A growth will be focused.
Clear & Consistent M&A Goals, with Recent Examples
Over the past decade, Honeywell has acquired 25+ companies. Most of these acquisitions are small bolt-ons or have little publicly information. However, over the past 4 years the acquisitions began to grow in scale and towards the software narrative. My personal favorite of the recent acquisitions is Intelligrated. Honeywell acquired Intelligrated for $1.5 billion and gained supply chain automation solutions that include cloud-connected mobile worker applications, high-performance data collection hardware, and other technologies to improve worker productivity. With the growth of e-commerce, warehouse and logistics software is a clear growth market.
Here are the recent notable M&A events at Honeywell.
Interestingly, though, it appears that the future M&A strategy is different than the past. Here is a clip, with quotes from the CFO, Greg Lewis, from 3 months ago!
Credit: WSJ
Later on in the article, the CFO highlights nearly $1 billion in cost savings and $3 billion in new financing structures to bolster Honeywell’s cash balance to $15 billion. Combine that cash balance with a recently hired world-class Head of M&A, Emily McNeal, and Honeywell is going to be hunting.
So where will they be hunting?
Supporting Data 1: In the past 12 months, Honeywell has built out a M&A team specific to HCE. And you can bet their Key Performance Indicators are to acquire technology & revenue… at fair multiples.
Supporting Data 2: Per the “Why Now for Forge” from above, these two pages (seen below) are starting to show up in nearly every shareholder presentation:
Come hell or high water, Honeywell is going to invest into digital solutions to enable HCE and Forge. Honeywell HCE execs are starting to see that their sales execs can sell software into existing customers. And Honeywell needs those early wins to gain confidence to make M&A moves. Based on these pages above, it looks like they are particularly focused on horizontal software applications that address a combination of the below industries:
Honeywell has built up a sophisticated Ventures effort. This effort is led by Murray Grainger. As the screenshot below shows, Honeywell has made it crystal clear in what technologies they want to make minority investments. This clarity is very helpful for the market. And if you want to see if
While the company does not specifically say ‘software’, 12 of their 13 listed investments are software-dependent investments. And these software platforms are primarily horizon applications and serve a number of the asset-heavy industries through the core program. As shown in the initial diagram, Honeywell also has a quantum computing effort and a few of their minority investments have exposure to those opportunities. There is also a similar exposure to Industrial Internet of Things communications networks, and managing the complexity of those sites.
AirMap: Digital airspace and automation company serving the drone economy.
Zapata Computing: Developer of quantum algorithms designed to commercialize quantum computing technologies.
Foghorn: Developer of an edge intelligence software designed to deliver the power of real-time industrial-grade analytics to resource-constrained edge devices.
Theatro: Developer of a wearable communication device designed to revolutionize in-store communication and hourly worker productivity.
These types of deals over the past 24 months are more consistent with the future M&A goals that enable Forge. A majority of these companies are digital first with cross-industry customers.
In Summary
Honeywell is biased towards action and growth around their software strategy. They have set-up Honeywell Connected Enterprise to enable the digitization of the connected products and quickly ramp up their software offering via existing sales channels. Honeywell is not trying to hide their ambitions: the goal is to build low code, cloud-enabled and domain-specific industrial operating models that embeds proprietary and third party applications.
With HCE and Forge as a software pillar, Honeywell is looking to grow their existing $1.5 billion software & connected products business by 20% a year. This growth means that HCE is looking to add $300M a year in digital revenues. While I suspect there are substantial organic tailwinds from existing clients seeking a digital relationship, I bet that Honeywell will seek to add similar amounts ($200M+) to topline digital revenues via M&A. any start-ups should be keen to get involved in the HCE and Forge application network.
Amidst the dozens of SPACs and high flying technology deals, an under the radar industrial software company went public last week and very few noticed. The company is Bentley Systems, is headquartered in Exton, Pennsylvania and as over 4,000 employees worldwide.
Bentley is a leading provider of software for infrastructure engineering, enabling the work of civil, structural, geotechnical, and plant practitioners, their project delivery enterprises and owner-operators. The company counts over 34,000 customers across 170 countries.
Why is this an industrial technology company? Bentley Systems’ software products provide project lifecycle, asset lifecycle and digital twin solutions, servicing the public works and utilities, industrial and commercial/facilities industries.
Like OSIsoft’s long path to the billion dollar exit, Bentley was founded in the 1980s and has had a slow & steady march ever since.
Company History
Bentley Systems was co-founded by the Bentley brothers in the early 1980s. Since then the company has acquired around 40 different industrial software solutions. At the core of the core are three products:
MicroStation: CAD software platform for design & drafting
ProjectWise: engineering project collaboration platform for AEC industries
AssetWise: asset lifecycle tracking for AEC, buildings
In the early 2000s, the company tried to go public, but scrapped the idea and instead took a minority investment from Siemens that totaled $76M.
IPO Process Part 2
Over the past two decades the company has continued to scale and now has a very sizable software business. Over the 12 months ending June 30th 2020, Bentley Systems generated $770M of revenue and earned a gross margin of just over 80%. The company grew about 11% year over year, and so the growth is lagging other, earlier stage industrial technology companies. BUT the company actually has operating cash flow with $174M of operating income, or 22%.
Based on margins and the sticky customer segments, Bentley had a very successful IPO and raised $237 million US at a $5.75 billion valuation. Unlike other IPOs these days, all proceeds were secondary, meaning no incremental cash went onto the company’s balance sheet. Instead, early and long-standing employees were able to monetize a portion of their equity position. In fact, Greg Bentley, founder of the firm, is still Chairman of the company.
My usual analysis here talks about the time from a Series A or multiple appreciation from the last round. However, the company had no traditional venture financing. And so, like OSIsoft, this sector shows that slow & steady can bring a great, public business. The company now trades at 7.5x TTM revenues. Not too shabby, and well-deserved.
The industrial technology M&A tracker that I co-developed with Ty Findley is now updated with this transaction. Link found here
In Matt Ridley’s book, he talks about how larger infrastructure projects have a higher likelihood to get bogged down with excess costs. The costs begin in permitting and ultimately show up in another, comparative form: Smaller form assets allow for greater iteration during development and more adjustments while in operation- continuously lowering costs. This tweaking is innovation at its’ finest.
Both wind energy and solar energy have declined down the cost curve dramatically over the past decade. And they have gone about that cost decline in different ways.
Wind blades are bigger. Blades and a turbine unit are ENORMOUS. Check out the graphic below. It is easy to forget now, but there was a time when energy professionals thought that small-scale, rooftop or backyard turbines could also be a viable solution. Wind has achieved cost declines by scaling a turbine and new materials and systems innovations. The latest GE Haliade-X is the size of a skyscraper and can power thousands of homes.
And solar (images after the wind turbines) has achieved scale by focusing on improvements to the panel (bifacial) tracker (sun-tracking, pneumatic) and systems (inverter technology) to make very rapid iterations in an array’s output. In solar, the unit remains small and the scale has grown in farm footprint, with sites now spanning 1,000s of acres.
Both energy forms will have a place in our energy transition. It’s fascinating how the two technologies are advancing and a reminder how hard it is to predict what happens next.
A few weeks back I indicated how I hoped that ChargePoint would have a successful market debut. Well, here we are! ChargePoint is about to hit the public market with their Switchback Energy reverse merger. The company released some basic information and is aiming to go public at a $2.4 billion valuation and is raising just over $600M in the process.
I like to keep my “highs” medium, and my “lows” medium and manage the emotional highs and low of being in the entrepreneurship game.
But, let me tell you… this is AWESOME for ChargePoint. The electric vehicle market is clearly the future. California is shutting down non-EV sales in a decade. The UK is doing the same. Other states will follow. EVs are the future and ChargePoint is the largest network. It should be a key part of the energy and mobility transition. And so, this access to the public markets is excellent for a number of reasons. Let me explain:
ALIGNED TO AN UNQUESTIONABLE GROWTH TREND
This picture below shows everything re: top-line revenue
CASH IS KING
ChargePoint will have approximately $683 million in cash, resulting in a total pro forma equity value of approximately $3.0 billion. Cash proceeds raised in the transaction will be used to repay debt, fund operations, support growth and for general corporate purposes. The proceeds will be funded through a combination of Switchback’s approximately $317 million cash in trust, assuming no redemptions by Switchback stockholders, and a $225 million PIPE of common stock valued at $10.00 per share.
And most importantly the company will now have an incredible amount of cash to continue building out their EV network. The demand exists as the number of Electric Vehicle sales continues to grow.
MATURING INVESTOR BASE
The energy transition has been mostly funded by venture capital and the corporate venture capital markets. To see key institutional investors including Baillie Gifford and funds managed by Neuberger Berman Alternatives Advisors joining the ChargePoint financing is VERY important for our market. These are long-term shareholders that are expected to be on the cap table for the build-out duration.
PRODUCT SUITE WILL EXPAND
With the infrastructure layer being built out, the application layer and software layer will become increasingly important. In the ChargePoint announcements, the company emphasized building out of software solutions, network management solutions and payment solutions. This software layer, including Vehicle 2 Grid and grid management techniques, will be very exciting. And main area where venture capital will fund voraciously.
FINANCING METRICS
Ultimately these are going to be a bit hard to swallow. This was 12 years from the Series A and at one point the company had raised ~$700M in equity to achieve a ~$1BN valuation. Not a lot of value appreciation. This is what “being early is like being wrong” may look like for an investor base. But the company, like the EV adoption market, has made great progress over the past 18 months and consumer demand has pulled ChargePoint towards greater scale. Big kudos to Michael Hughes, a relatively new Chief Revenue Officer there, for getting a lot accomplished.
VALUATIONS
ChargePoint will have around $135M of revenue in 2020, growing to 200M next year. And is targeting to grow to $2 billion of revenue by 2026. This high growth revenue opportunity is the growth the public markets are looking for right now in a low interest rate environment.
This means that ChargePoint’s current $2.4 billion enterprise valuation is 17x current year’s revenue, 12x 2021E revenue and ~1x 2026 estimated revenues. Yes yes, these are frothy. But in a low interest rate environment, the market is searching for 10-year growth opportunities and ChargePoint presents that unquestionable opportunity.
