Insider's Guide to Energy
The Energy Industry is uniquely evolving as traders are under increasing pressure to manage costs, cash, limits, and risks. The Insider’s Guide to Energy Podcast addresses current and emerging challenges business executives face daily through stories shared from peers and industry experts while covering topics such as innovation, disruptive technologies, and emerging trends.
Insider's Guide to Energy
134 - The Future of ClimateTech Investments
The world invested over $13 billion in climatetech in the first half of 2023. Huge, until you learn that it is 40% down when compared to the first half of 2022. So how to attract fundraising in the current recession fuelled market climate? Join us as we talk about this and more with Juan Muldoon, Partner at Energize, a US based venture capital firm investing in climate technology businesses at the intersection of software and renewable energy. We learn about the investor sentiment towards the energy transition, what qualities do investors look for in energy startups and what the future trends in climatetech are.
Hosts: Chris Sass and Niall Riddell
Additional Reads:
Energize: https://www.energizecap.com/
10 ways to win in Climatetech: https://www.energize.vc/news-insights/energize-presents-10-ways-to-win-in-climate-software
04:19.91
chrissass
Welcome to insider's guide energy I'm your host chris sass and co-hosting with me today is Niall Riddell. Niall welcome back to the program things are going well and we are going to talk about financing in today's environment and you know being an energy tech.
04:39.90
chrissass
That's on pretty much everyone's mind that I talk to these days I don't know about you.
04:41.72
Niall Riddell _Paua_
Yeah, fundraising in the current market climate. We're in a bit of a recession things aren't looking quite as rosy as they used to. It's a challenging market environment.
04:50.59
chrissass
Well I think you're projecting why don't we bring our guest on and see what he has to say because he may have different feeling Juan Muldoon welcome to the program. We're excited to have you on the show you you heard a little preamble of what I think we might be talking about but before we go there.
04:59.80
Juan M
Hey Chris thanks for having me.
05:10.38
chrissass
Why don't you let our audience know who you are and what it is you do professionally.
05:11.77
Juan M
Sure my name is Juan Muldoon and I'm a partner at energize. Energize ventures is an asset management firm. We're based in Chicago and we invest primarily in software that's driving the energy transition. So think about those 2 big circles software on one side climate on the other. We invest at that intersection and we partner with entrepreneurs from the earliest stage so series a series b and series c out of our ventures program and then we have a growth investments program as well. That can continue to deploy equity into companies all the way through to Ipo.
05:43.26
chrissass
And and so that growth stage typically I associate that less with software companies and more with people doing something with tangible hardware or long development cycles is that more where it fits or is it also pretty applicable in the software companies. You're funding these eggs.
05:59.43
Juan M
Yeah, so the entire platform is only software software software right? Um, and we see growth actually playing a big role as a lot of these software companies continue to need capital to scale. Um, because they're still especially in our market still investing into growth. So you know software companies right? off the bat obviously have much higher growths margins. They have you know a clearer path to profitability. They tend to be much more capital efficient which is one of the reasons that we love them. Um. But even through you know the the later stages of Development. They are still requiring capital because they're leaning into that growth before you know, kind of shifting to to profitability.
06:40.27
Niall Riddell _Paua_
This sounds incredible Surely everyone should be investing in software companies right now and yet we seem to have had a little bit of ah, a tech dieback going on. You know what is going on in the investment climate right now.
06:49.78
chrissass
So.
06:51.58
Juan M
Ah, great question. So I'd say there's 2 things. There's definitely a broader market pullback. You know if you look at the public markets or even if you look at you know generalist investing and in the venture space. There has been a rapid sort of. Decline for 2023 compared to the craze of 25020 even 2022. That's generally the case I think within climate we've actually seen some buoyancy there. We've actually seen a lot of. Interest and a lot of investors that want to invest more directly into these themes and frankly, it's been a space that has been quite resilient. We have not seen a drop off at least in the demand now it's still down compared to prior year in part because you know prior years were were so um. There was just so much volume and so much capital being put to work I think we've normalized a little bit but there's still a lot of strengths and so maybe let's just you know to to put it into numbers. There were over $13000000000 in climate tech funding in the first half of 2023 that sounds like a big number right. Um, that's that would dwarf what it was in 2005 2006 16016 even when we started energized and yet it's still down over 40% compared to the prior year.
08:11.87
Niall Riddell _Paua_
So 2016 you started this journey into climate tech. Um, what was it like back then I mean 13000000000 is a decent size number but you know were there lots of investment opportunities back then or was this really nascent.
08:24.53
Juan M
It was still not obvious um in in fact, the whole concept of climate tech hadn't really been coined as such we had seen the early rise and then precipitous fall of clean tech in the sort of mid to late 2000 um, and ah, really kind of everybody that had invested in the space. Unfortunately, there had been a lot of losses and people retrenched and so there was not a lot of activity. Um, you saw it being really more framed as energy transition or more industrial digitization. Um, but clean tech was still kind of a 4 our-letter word and climate tech hadn't really hadn't entered the public narrative so it was a very very different place. We saw much fewer investors fewer opportunities I'd say um, although frankly, we saw you know, really fantastic companies that are now. You know the the leaders in the space. So there was no lack of really good opportunities for us to invest in it was just you know different than today.
09:23.41
Niall Riddell _Paua_
So as a consequence of like having made some of those investments early on you must have some pretty interesting businesses inside that collection are yours portfolio Stable Whatever you want to call it. Could you let us know some of the businesses you might have invested on early and you know how are they getting on.
09:40.88
Juan M
Sure, um, we were fortunate to back some incredible entrepreneurs early in their journey in fund one which we started deploying really in 21018 we were in force a company that you and your listeners will be very familiar with is aurora solar. It's a software only tool to help. Installers basically design rooftop solar installations. We led the series a and have been supporting the company through multiple rounds of financing since then that's an incredible example of a market that was big. Ah, but maybe not growing as as much at the time and that was totally not obvious for the generalist investors. We had a prepared mind. We knew exactly what we were looking for. We were thrilled to have the opportunity to partner with Kristen Sam at the time and you know that's been. 1 that has that has definitely eclipsed I think most expectations for growth simply because investors sometimes fail to realize that markets can expand exponentially. Just like companies can't and if you can find a company that is tagged to 1 of those exponentially growing markets and you're able to have a very defensible model with an incredible product like Aurora did some magical things can happen.
11:03.50
chrissass
And so that that's a solar company. We're seeing a big boom um Niels in the ev space he and I do ev podcast together. What are you seeing in the ev space.
11:12.20
Juan M
Actually a very similar setup within the ev space so we talk about you know, exponentially growing markets. We actually think that the electrification of transportation is one of the most important and biggest transfers of joules of energy that we're going to see in our generation. Um, you have a very large need for charging infrastructure just the infrastructure alone is going to require hundreds of billions of dollars worldwide of deploying capital um, you're seeing market-wide growth rates compounded annual growth rates well above 30% um, the technology is not just readily available. But it's also rapidly improving and it's powered by advances in a lot of other kind of adjacent fields that like software so you have a very positive mutually reinforcing sort of loop and one of the things that I love about. The ev infrastructure world today is that these are digital assets really right? There's a digital backbone that is required and we can actually get more out of these assets at the individual level at the cluster level more locally and potentially even at the system level so software we see is really the secret ingredient to help unlock a lot of that growth. Um, there's sorry, go ahead.
12:26.83
chrissass
Um, and then so you just mentioned him I didn't mean to cut you off, but what's coming to my mind right now is solar E The these are a little bit in the Us Wild West spaces. It's really early. There's There's a lot of really interesting companies and startups and ideas. So when you're sitting across the table and someone's pitching you. How are you figuring out and we don't have consolidation yet right? We're still in the wild West Phase. So How how are you making calculated bets in software companies in this kind of environment this kind of hyper growth or potential growth.
12:56.26
Juan M
Yeah that's a great question. Um, let me let me first maybe frame with one of the mental models that we use at energize that basically follows how technology penetrates these sort of industries because I think it's it's helpful as background. Um, the first. The first massive sort of learning curve or or first wave of technology thinking about energy or industrials is a hardware learning curve right? You have rapid cost declines that are driven by manufacturing and scale think about clean tech 1.0 right hardware learning curve most of the. Hardware will will eventually become commoditized and the market share will accrue to the lowest cost provider. So that's sort of phase one of technological innovation. We don't like to play at that phase we're software investors and so that's a required phase but that's not where we really have an edge the second learning curve is a business model innovation phase where. You have some new ingredient that is incorporated with and it might be distribution. It might be a way to finance. It might be a way to lower some cost some portion of the cost to deliver or to service these you know hardware assets that are now and so that compresses the unit costs. Um, but the soft costs actually end up baking more of the overall cost of the asset and so we think that's actually a very interesting place to play especially where you have software plus services. You can have some magic happen. Um, and the third and most exciting phase for us is.
14:30.70
Juan M
Where it's really software-enabled scale. So the soft costs have exceeded. Let's say 50% plus of the overall unit cost which you know drags a little bit the profitability around the value chain and this is exactly where software can actually play a difference. This can be where a really good software tool can come can come in. And help eliminate or at least reduce some of those soft costs and we saw that in solar. We saw that with batteries we saw we've seen that with wind assets and we think that we're going to see exactly the same thing with electric vehicle infrastructure. So if the first wave let's say that hardware learning curve. Maybe that was Tesla right. The second wave might might be something like ebgo or electrify America or some other company that has you know, brought a slightly different business model. We think the third wave of that software enabled scale is where some of our investments are beginning to place so smart cart which is an api system for connected vehicles. Manta which is really the digital backbone for a lot of that energy infrastructure and so for uss to answer your question Chris it's very important to get the wave right before we're even considering an investment we need to make sure. Are we at the time of the market when the market itself is ready. To adopt and to scale these software solutions so we have to get that right first and foremost.
15:43.38
Niall Riddell _Paua_
So So hearing that story is fabulous because it gives some structures to where you might be doing your investments but behind that there must be an overarching thesis as to why you're investing in climate. My personal experience was going through a whole bunch of time with the committee on climate Change. Wrote some carbon Budgets. We realized climate change is very real technology is a big part of the answer. What was the thesis when you sat down and energized to go after that climate space.
16:08.46
Juan M
Well, that was that was really it it was this is a large market that is obviously going to continue to grow and we saw sort of 3 the 3 d's in the energy market we believe that the energy market was going to be more decarbonized that. Train had left the station right? This was not a political question. This was not even a cost question right? wind and solar were already cost parity so it was going to be decarbonized. It was going to be more decentralized. We're going to go from the large central power plants of the past to much more decentralized distributed assets and that requires a complete shift. From a product perspective and then the third is and I think that this is very consistent with the eb theme is that there was going to be these were going to be more digital assets more digital enabled right? and there was going to be a software layer on top that would help us optimize the deployment of these assets that would help us. Optimize the management of these assets and that was going to continue to accelerate that trend that was the thesis from the very beginning.
17:08.23
chrissass
And now have you seen what I think I see I don't know if my sample size is big enough but in my community of friends and founders that I work with many of us started in telecommunication and other technologies because the. Statement you just made about distributed energy and the scale and and all that is very analogous to the communication networks that we built in the past so is is this a trend to the founders that you're seeing that are coming to you are they coming up through the ranks of Silicon Valley and other tech companies or are they coming from the energy industry.
17:28.54
Juan M
Absolutely.
17:40.68
Juan M
That's a great point and I would say both actually many people believe that the energy world is or the energy problem. The climate problem is going to be solved by you know, energy entrepreneurs I think that that's true. We will all have a hand in it. But. There's a massive amount of technology that is actually either born in other industries that we can use or that has you know, maybe it's cross-applicable. So we leverage rese this sort of leveraging of other industries really in 3 ways number 1 technology so examples from our portfolio something like drone deploy which is a software to manage reality capture across different either aerial or or ground drones their primary use cases were in the construction and the insurance business when we invested we actually had a point of view that. Ah, specifically solar utility scale solar deployments were going bigger and bigger and bigger and you needed more and more technology to help manage the construction process manage the operations and maintenance you needed. You know, sort of a different level of scale and we thought drones was going to be ah, a fantastic use case for that. We actually introduced. Drone deployed team in part to the renewable energy industry and said hey this is a market that needs your solution where we can help you break in and today it's over a third of the revenue base. So there's real opportunity for technology that is already deployed in different kinds of markets.
19:09.80
Juan M
To have an impact in our space. So that's number 1 talent I think is the other right? you mentioned it Chris we see more and more talent with functional expertise particularly around scaling enterprise saas companies coming into the climate space. We love that I think that's fantastic if you're able to take somebody with real chops on. Go-to-market or marketing or sales. Let's just make sure that you know we're selling the right thing but that's a really good one and then I think the third one you've just mentioned which is that markets kind of tend to ride and so we've learned a lot from telecom construction industrials. Not just that what are they using. But what are the adoption curves look like what are the deployment curves look like um how do the customers in competition really start to converge as these industries scale.
19:51.89
chrissass
And then what kind of returns Do we expect in the energy space right? So I could tell you what we didn't tele acom I can tell you what we did another tech. Um and it was pretty aggressive in the in the heyday. Um, we're kind of in a boom I mean yes you say it's down but it's still a pretty happening spot and there's a lot of money going.
20:08.81
Juan M
For sure.
20:11.56
chrissass
Do it? Um, what kind of returns are investors looking for and what kind of exits are they looking for.
20:15.30
Juan M
I can tell you what what we are looking for and maybe not to generalize beyond that you know, but we're venture capital investors. We're financial first and so you know our goal is to return at least 2 to 3 times the fund in aggregate. So anytime that we're making an investment. Obviously we're adjusting for risk. And so our expectation is that you know the the folks that we're investing behind will be able to have a five ten x return from our point of entry I think that that's totally doable. These markets are big and growing and technology is moving the needle and you know I think the second layer of that is well how much capital does it take to get there. Right? Which is part of the reason going back to the why software which is part of the reason we occupy that space.
20:58.34
Niall Riddell _Paua_
So to Chris and I both had some experience running around in this space speaking to vcs and trying to get the attention of vcs. Um, you've clearly seen some pretty awesome companies and therefore you're the kind of person that we'd all love to speak to what is it that. Tech founders out. There should be like presenting to you? What is it that makes someone stand out from the crowd so that you go I must speak to these guys and then even better. What makes you then go from this is interesting through to yes I'm convicted that this have gotten a massive conviction. This is going be huge space. Great team. What is it that really makes you tick.
21:30.27
Juan M
Yeah, um so I'll give you the answer in 2 parts number 1 is sort of what is the rubric that we evaluate opportunities on because I think that that will will show some light and then maybe what is the x factor that historically has made a big difference. Um, but on the first side you know we we have a rubric that we follow which is we evaluate product market team economics deal and then the last one is I for impact right? So what is the impact that this is going to have in in this transition. Um, obviously for product you're looking for something that works you're looking for. Ah, something that is defensible and ideally you're looking for something that is going to have a compounding advantage in time market. You know we tend to know our market's cold just because this is the only thing that we do right? We're laser focused on this energy transition and sustainability. So um, we'll have a very prepared mind. On the market because we've been driving that conviction through our research process for you know, multiple quarters but we'll look for you know what is the competition. What is the likelihood of you know obviously substitutes coming in Etc, etc, etc. Team is super important at the end of the day we're investing in people. Um and we need to see. That these leaders are not just tourists. We want to have you know folks that we're working with that have you know have the expertise are able to attract more talent or able to attract more capital around them. Economics. We've talked a little bit about that and we can double click into it because I think it's really important the metrics are a little bit different.
23:01.51
Juan M
Um, we're looking at saas companies primarily and so you know obviously we're driven by gross margins. We're driven by Net dollar retention those 2 things are probably the most important things that that entrepreneurs should be should be focusing on. But obviously there's growth and there's you know, average price per use. There's all the other metrics that you would expect. Right for for health for fundamental health of the business. Um, and then you know obviously can we can we structure something here that will that will meet our return expectations is is very important so that's sort of the big kind of framework. Um I think that there's there's 3 razors that I fall back on a lot when we're bringing. Things to investment committee and it's the three c's number one does this entrepreneur and team have commercial respect respect for the industry's sales cycle focus on that commercialization. Not just the technology but how are we getting it to market. How are we actually delivering a product with economic value. Ceos that understand the use cases that understand how the customer ticks that's really important for us the second c for me is customer validation. It kind of follows the first we want to see revenue. We want to see ideally that revenue go through at least 1 if not 2 of renewal cycles. Want to make sure that the quality of that revenue is persistent and that it's not just a pilot program or that it's not you know some innovation budget but that there are real business initiatives that are tied to this particular technology and then the third c is capital efficiency right.
24:31.53
Juan M
Um, we need to be able to withstand a longer sales cycle and energy Trans traditionally and so we look at things like the burn multiples we look at things like obviously the gross Margin Story. We don't mind if we're investing a little bit into sales or rather into customer success and maybe dragging that gross margin down. So long as we're seeing it on the backend in terms of account expansions in terms of you know, better Net dollar retention.
24:57.63
chrissass
An earlier question. You said something that made me think maybe you guys are active investors. Um I think you you talked about bringing a company into the energy space as an investor. Um, how active do you think an equity partner should be.
25:05.61
Juan M
A.
25:13.47
chrissass
So when you when you get in are you are you bringing your leadership team in and helping the leadership team are you in the day to day in the quarterly meetings where what's your level of engagement.
25:22.18
Juan M
I would say we have a pretty high engagement and our goal is that we can lead to better outcomes because of energizes engagement. That's the point right? We don't want to make an investment in a company that we don't think we're going to be able to positively influence full stop right um. How do we do that? Well we join boards on every single one of our new investments. We. We take a board seat sometimes 2 board seats with an observer because we think that you know having that relationship and having that impact is important. Um, we work very hard to earn the first call from the ceo good things bad things are happening hey what do we do. Um, you know that's and that's different from just a board seat right? That's a level different level of engagement. Um, oftentimes I mean we have cros in our portfolio that have my phone number and we're getting the direct line to the executives which is really fantastic and then the other thing that I'd say is energize has. Ah, built very deliberately a ah whole team. We call it the edge platform of functional experts that can drop into the portfolio sort of on-call and help either troubleshoot something or set something up for the first time.
26:32.59
Juan M
With you know years of experience selling and scaling software companies. So just to to bring up 1 specific example we have a gentleman in our and our team called Jeff Schmidt prior he was chief revenue officer at drone deploy another of our investments. Um, he has you know 2 decades of experience building and scaling. Ah, go-to-market teams and motions which is a super critical function to get right in the early stages of commercialization and and kind of company development in the energy space and so the fact that we can have Jeff who can work with an entrepreneur that maybe has been focused on sales but hasn't. Built out a team around him to be able to do that. Well what do you even look for Where do you start? What should the right motion be what should the quotas be all those different things that you know an experienced cro can bring to the table we can bring us a platform.
27:27.70
Niall Riddell _Paua_
That's really cool. So we've got um you know investor who understands the space you've clearly you know identified that we're going through a little bit of a tough time at the moment but we know that we have to do more in the climate tech space in order to enable our energy transition and enable us to get to this cleaner Outcome. What kind of things. Do you see coming forward. You know what excites you as we look into the future of investment in this space and you know how do you see this landscape changing as we as we we now have these higher levels of Renewables. We now have this technology emerging what's happening next? okay.
27:56.51
Juan M
Ah, great question I think that we well the the only constant is change right? We think that you know the technology trends or the energy transition will continue and then it's just a matter of how well and how much to software penetrate and how can we extract even more value out of that. Um, to be more specific there are there are underlying trends that we think are going to play out over several decades that we're still in the very early innings of as an investible opportunity for us. So we've talked about solar I think there's a lot more that we can do in terms of solar bringing more efficiency software bringing more efficiency. To that? um to that specific technology lessen the leading derivative and more on the kind of like mid-level to lagging derivative potentially now that more and more software is deployed batteries is another fantastic example. We've been following this space for you know 7 years since really since our firm inception. And we've been we held out on making any investments in battery technologies in our first fund because we thought that the market was kind of coming and always around the corner always around the corner always around the corner. We ended up actually making an investment in a company called twice out of Europe that does battery analytics. So the software that's actually you know. Used for advanced battery analytics. That's more of a leading derivative play right? The battery market is coming. We want to be on the front end of that deployment cycle electric vehicles and ev charging. We've talked about.
29:23.16
Juan M
Um, I think that is going to continue to be a very important portion of our thesis. So so software that is tied to the electrification movement. The electrification of really everything des all those things are squarely in our sites right now. Um, we're very curious about how we as a system solve some. Different questions around it. So labor is a big bottleneck these days can software help us enable more of that whether that's through technology for training or technology for workforce management. That's something that we have our sites On. Um. You know the carbon economy overall is still a very nascent space. A lot of the digital infrastructure that's required for that to flow properly hasn't been built yet. Um, and we've we're very excited about where that's going in the next couple of years. Um, and I'd say the other thing is that there's a lot of maybe simpler. Um, workflow automation tools other kinds of things that maybe cut across multiple industries that can help maniacally reduce those soft costs that we've talked about we've spent a lot of time and actually made an investment in a company called banan at the intersection of finance and renewables. So All this capital is coming into the space. There's a ton of soft costs associated with it. There's a ton of places where things get stuck literally behind emails and paper and just processes that can be automated or made more efficient with software tools are.
30:48.31
Niall Riddell _Paua_
So You've talked about a couple of the investments that you've made and they they feel to me like they're north American European Do you look outside of those markets and you know see what's going on across other parts of the world to understand how you see Trends changing and how do you position the different markets because. I'm sat here in the U K We Always like to think we're bit of a leader in offshore Wind. You know do you look to the U K for that sort of stuff and then you look back to other countries for other technologies.
31:14.26
Juan M
Yes, we do. So we're not geographically constrained in any way other than I guess how quickly I can get from here to you know Zurich or wherever it is the next opportunity will take us. Um, so we have about 25% of our investments have been in Europe. We have companies across across Europe and we're happy to go there primarily for the reason that you've mentioned right? which is those markets from an energy perspective are much more developed I mean let's look at the ev space. For example, we made an investment in a company called Monta which is based in Copenhagen. And we love the fact that they are not just playing but winning in the largest most mature market right now which is really Europe but we'll go anywhere. We've looked at a couple of companies in Latin America have not come close to an investment there. We've actually looked. We have an open. Ah, sort of deep dive into emerging markets and how can emerging markets use software to leapfrog some technologies in the energy transition and we're seeing some interesting things there as well.
32:18.11
chrissass
To when you go into a market like Copenhagen or somewhere in Latin America or South America um are you investing for a global play or are you willing to make a regional play as well. So might you have charging infrastructure in the Uk charging infrastructure in Denmark and somewhere else or would you. Consider that competitive within a portfolio.
32:38.37
Juan M
I think you need a certain level of scale so we wouldn't invest in the company in let's say denmark and then the next thing in Germany doing the same thing right? Those are probably too close. Um, the the company that I mentioned Monta will be a global player. We will expand it to the us and part of the reason that we're excited about that is we think that you know there's a much broader bigger play there and we have not run into sort of the geographic boundaries I guess um, you know for for an investment maybe part of that Chris is because software is kind of. Global and globally distributed and it's hard to have like a you know, really built out moat from a geographic perspective.
33:17.40
chrissass
Hold on on that note, it is and it isn't so Europe's got some different legislation in protections and so running a software as a service company in both North America and Europe and there's quite a bit of nuance to doing. It's not super easy, right? The software is easy to make work.
33:22.31
Juan M
Um.
33:34.80
chrissass
So the technology is easy. It's the politics that are hard.
33:37.60
Juan M
For sure for sure I guess my point is more if you're building a software company in Utah it's not like you can't take that to New York um and if that software company works and scales and you're able to deal with some of the different jurisdictions you can easily deliver it to Switzerland right.
33:42.29
chrissass
Yeah, of course.
33:54.85
Juan M
Much more than if it's a hardware or or a or a local services business.
33:57.13
chrissass
And then are you seeing some trends of so you know Neil I think broes of what's coming so are there are there trends in the software or trends like is is Ai now since it's a current buzzword across everybody's bonacular is that suddenly something that people are rushing to invest in or is that I mean.
34:09.11
Juan M
For now.
34:16.62
chrissass
What what? Trends are you seeing.
34:18.14
Juan M
Yeah, um, specifically on the Ai question. It's sort. It's sort of dizzying because you know I mentioned climate as being pretty resilient I think the other pocket that has seen a lot of interest is like anything that has to.
34:23.60
Niall Riddell _Paua_
Cornet.
34:33.40
Juan M
Do with Ai right? and you put those 2 things together and then it's like oh my gosh. What are we like? First of all, what is it really like is this really ai or is this just more advanced compute and then yeah I mean people's imaginations I think run a little bit wild which is great right? Like at the end of the day. Great technology I think it's Josh wolf that likes to say great technology is indistinguishable from magic right? Like there's so many things that Ai can do at a very advanced. Ah you know, rate that you need teams and hordes of people to be able to do so I think that there's a lot of interesting use cases. On the flip side of that I mean we've been investing in that for years right? Aurora the company that I described earlier has very advanced analytics for positioning and for optimizing system design. Um, but that's not why we invested in it. It's not like all let's invest in this because it's Ai, it's well let's invest in this because there's a massive problem here that can be solved and there's a really great way to do it. That's kind of how we like to think about it.
35:30.44
chrissass
So another tech that had a bubble and still people in North America talk about it quite a bit have a lot of hope for it is Blockchain so you know if we're going to you know, talk about all the elephants in the room.
35:38.41
Juan M
Yes, oh.
35:45.78
chrissass
What's up with Blockchain. What are you seeing from the investor side. Are you seeing new companies coming out with it. Are you seeing your past investments in it paying off what? what do you think.
35:51.31
Juan M
We We very deliberately stayed away from a lot of the blockchain applications you remember in 2018 I think it was and I'm happy to share some of our research from back then but this was the panacea right? It was if you. If you just took you know an empty nap in and you sketched out Well energy markets are highly distributed and there's regulation. There's payments. There's all these things and you've got commodities that you can track and trace and you could use it for everything and for anything. Um and there were a couple of you know I think well-funded companies at the time. Um, it was always the poster child I think for a great technology idea that was desperately searching for a problem to solve and in reality the people that were solving that problem were not defaulting to blockchain they were defaulting to something that was maybe not as efficient, but it was fine.
36:49.89
Juan M
The problem paint point Match. Never really Happened. Um I have not heard blockchain brought up recently. So Maybe some of those companies were able to make it out of the valley of death. But I suspect that a lot of them either didn't or pivoted into. Um, you know serving that problem in a different way.
37:09.24
Niall Riddell _Paua_
So we've gone from the super sexy ai and super sexy blockchain into a world which is a genuine problem seeking a solution. What do we? What do you see in the world heat heats like this megas issue I'm in you know I'm London it doesn't get that cold in winter. But we know that british housing stock is pretty terrible. We see gas demand go through the roof. It's a massive part of our you know decarbonization agenda to decarbonize heat. What do you see coming in heat.
37:37.52
Juan M
I think heat pumps specifically are going to be ah well they already are capturing a lot of attention in our space. Everything from hardware you know companies coming up with new and better designs down to more software enabled. Services companies and and then there's a few that are that are software First I think that's a really interesting space because the problems are real right? I think the question is well who's dealing with that problem and who has the budget to actually scale. Is it going to be the home owner in the States. It hasn't not been. Right? Like the homeowner in the United States is is hard to get that person to turn the nest down or up by a couple of degrees because the ultimate price that we pay is still fairly low, right? The pain point is not high enough but is it going to be that is it going to be the asset owner perhaps is it going to be the installer. Um, what is it or is it goingnna be the oem that somehow figures out a different wedge to get more of this product to market or the utilities through rebate programs I think that there are a lot of really interesting. Go-to-market and scale questions around that specific area. Um, that we're actually very bullish on and we'd like to find a great investment in that space I think that it's probably going to be geared more to who's providing that service and how can software help almost like aurora rather than direct to the homeowner because at least in my experience. You know you have to be really gog -ho about.
39:06.34
Juan M
The energy world to care enough to really move your preferences.
39:11.30
chrissass
But I guess we had a recent guest talk about the concept of clustering so you've got evs coming in suddenly I go from and these you know Hipppie cars to something that I drive every day or something that's you know, practical and it gets me around and it's cost effective. Um solar panels become cheap and my electricity becomes cheaper. So. Do you look at investing in technologies or software companies around clustering effects is that one of the things a metric you consider.
39:37.37
Juan M
A little bit I think 1 thing that we like to see Chris is what we call enabling layers. So what are those sort of enabling digital layers the api systems these sort of things that that help to um. Deploy more of these assets without necessarily having to take a specific point of view on it's going to be this particular piece of hardware or it's going to be this particular technology or geography that is going to take off. Um, that's point number one I think point number 2 you're totally right that a lot of these are self-reinforcing decisions and it's. You know it also comes down to individual preferences. So if you're the type of person that cares enough about energy to put solar on your roof you probably care enough about energy to make a lot of other choices and if you're not. If you're gonna go for the heat pump because you think that it's going to be. You know, eventually more cost effective at the end or or you only care about the evs because it's a you know? cool sexy car. Um, well then it'll take you a little bit longer to make that second you know sort of clustering choice. So it's hard to to play the timing right? But I think if you can play that. Enabling layer and you can get exposure to the broader growth of it then you can be in a really good place.
40:50.91
chrissass
And a question that comes to mind in an energy tech company by the time a company gets to let's say an a round or something like that and you you have your founders in there. How diluted the founders get in that world are they at like 10% 20 % where where do they tend to fall in by the time they get to the companies. Really there.
41:12.10
Juan M
It really depends. It depends on the founder it depends on the specific nuances it depends on the fundraising environment that they had when they first raised their first couple rounds. Um I think that you know we like to see founders have at least 10% plus certainly in that a category I mean you should have you should have way more than that. Um, because we want there to be. You know, sufficient skin in the game at the end of the day. Um, but you know funding rounds can be are diluted right? and it can be anywhere from 10 to 20 to 30 maybe sometimes more than that for. Ah, you know, but it's very nuanced I don't think it's it's easy to generalize that.
41:50.51
Niall Riddell _Paua_
So It feels like we're starting to have a conversation like a generalist investor. You know you speak to the tech investors and they go hey yeah we invest across software companies and for me my heart sinks at that point because all of a sudden I'm like oh God here we go I have to Explain. Climate change I have to explain what it's like to manage electric vehicles. What I love to hear is you know, something specific from the investor about what they're really good at how do you see yourself differentiated from like a generalist tech investor.
42:20.90
Juan M
I think that's an excellent way to show it. You don't have to spell out ds and vpps to us right? We know the space we cover the space. This is the only thing we do and we are laser focused on How do you scale a software company efficiently in this particular space. It's gnawing the nuances and it's frankly being the voice of the customer and the industry in that boardroom as well. We've seen a lot of other investors and you know this is but but sometimes the playbook isn't the same you guys. Um, sometimes a traditional saas playbook of well let's lean in to burn before the market's ready that could kill a client company with a really long sales cycle. Um, and so I think that I think being able to say it's not an either or you can be both a fantastic software investor and. Laser focus on this climate and if you can bring those 2 things together. It could be really good. So that's 1 thing that that I like to lean into and then you know the second and it kind of goes back to this edge and and firm support that I was talking about before we're going to be there every step of the way we're going to bring. Full resources and full value of the firm of energize to everything that we're investing behind. We have a very concentrated portfolio so usually 1415 ish names per fund on the venture side even more concentrated on the growth side. Um, so.
43:48.93
Juan M
You know we're not going to just put an option down and then you know hopefully it hits type of thing before the next thing gets hot. We're in it.
43:56.62
Niall Riddell _Paua_
So you've we've taken us on a bit of a journey through the recession. The climate is still a little bit more buoyant than others a bit of history. You've given us an amazing story around how we go through waves inside this ecosystem and where you like to invest and then you've given us some cool insights as to what investors can do to stand out. Given us ah like ah a very strong professional perspective of the journey. We've been on but 1 of the questions I love to ask my investors which is a bit cheeky and I'm going to take this opportunity to ask it now. Do you have solar on your rooftop. Do you have battery at home. Do you have an electric vehicle.
44:31.10
Juan M
Ah, great question. Um I don't have solar on my roof I've had it looked at twice actually ah, really cool. The last time that I had it looked at the guy that came ah had a. Had a drone that was using drone deploy one of our portfolio companies to map it out so that was really cool but I don't have solar on the roof. Unfortunately the the way that it pitches is like too steep and so it doesn't pencil out and it doesn't look the right Way. So unfortunately, no solar. Um, I do have as as smart a system as you could get for ah for thermostat management and no Ev Yet. We have one family car and it's a superru that can take all of our kids Around. Um, but I'm on the short list for a cyber truck as soon as this thing rolls off production.
45:20.84
Niall Riddell _Paua_
Beautiful, amazing.
45:23.10
chrissass
Well I think it's been a great conversation one before we wrap up is there any final thoughts that you want to do to pull this together for our audience that you want to share.
45:31.15
Juan M
I mean I think this was really a fun Conversation. So I appreciate both of you guys having me On. Maybe the the leave behind for the audience. Remember these markets are big and software can actually make a big difference and you know maybe maybe just say that a different way software can drive. Alpha. Ah, for investors and and certainly big opportunities for entrepreneurs. So. There's so much more to do and we're excited to continue to be a part of it.
45:55.93
chrissass
Well thank you so much for being a guest and insider's guide to energy today for audience. We hope you've enjoyed this episode. We had a lot of fun making it found out a lot.
45:59.63
Juan M
Great! Thanks Chris.
46:07.30
chrissass
If you have questions and things drop them in the chat when you follow us on Facebook Instagram or you can follow us wherever you subscribe and get your podcasts. We'll talk to you again next time bye bye.