It's Not Easy Being Green
Zaid Ashai invests money for Point Judith Capital, a private equity firm, and heads their Boston office. On March 6th through 8th , the Northeast Sustainable Energy Association held its Energy 12 Trade Show at the Seaport World Trade Center in Boston, and Zaid ran a seminar on the VC view of the building energy market.
Money seems to be flowing into the business of managing energy. The companies that are getting funded address the demand side: energy efficiency, use, tracking, management. The supply side is sluggish for investors and may well stay that way for the near term, given the low price of natural gas. Thus, investment in wind, solar (even though solar companies were lavishly represented at the Trade Show), batteries and the like will encounter difficulties in attracting investment capital.
Point Judith looks to do Series A investments into the emerging markets, from the $500,000 to $3,000,0000 to $4,000,000 range. What do they look for? In order of priority: a management team with emotional self-intelligence and humility, a strong market, and thirdly the product. Not surprisingly, they strongly recommend avoiding cold submissions to investors; it is common wisdom to try to be introduced to the money rather than simply tossing your business plan over the transom.
Energy is a regulated and structured market and consequently great care has to be given to the strategy of the business plan. Are you going to compete with or try to partner with the big players?
Most interesting to me was the effort to apply information technology to the monitoring and management of the demand side of the energy market. The goals are efficiency and low cost management of the energy supply. With a tight economy, the business plan ought to aim to provide payback to customers in a shortened three year span rather than the traditional five year payback; customers also want a turnkey installation with a single installer, minimizing disruption and giving the customer “only one neck to ring.”
Energy management companies which are drawing financing not surprisingly seem to address the larger markets: office, retail, education institutions, lodging. Of course it makes sense to offer energy management solutions to customers who have a lot of energy to manage.
Why don’t the energy suppliers, many of which are very large and sophisticated, enter into this market and blow away the emerging enterprises? The thinking seems to be they are not fast enough or innovative enough to do this; software development in this area is being driven from the bottom up (as indeed in many other areas).
To the shock of some of the attendees, it was noted that business buyers in this marketplace don’t much care about being green (although they may say otherwise as a marketing tool); they want low cost and reliability, and investors want companies that drive that result.
The goal of United States energy policy is to provide 20% energy savings by the year 2050. Point Judith Capital targets demand side management companies that will facilitate reaching that goal. So while the Trade Show floor was flooded with portable toilets, triple pane windows, solar energy panel manufacturers and installers, and the like, the financial discussion was all about software solutions, and knowing when to shut down servers in data centers. A brave new world.
(Disclosure: my lawfirm has represented Point Judith.)