Equal Ventures Focus Area: Energy & Sustainability

This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.

This is one of our current interest areas for investment at Equal Ventures. Our other areas of interest can be found in our overview post.

Market Overview & Shifts

As the impact of climate change becomes more evident across the globe, consumer consciousness around sustainable consumption behavior is seeing a significant resurgence. A subset of consumers have demonstrated increased willingness to pay a premium for green energy, with these trends spilling over to businesses realizing that they need to make more environmentally responsible decisions.

While policy remains a hot topic at the federal level, state and municipal policy seems to be the driving force for regulatory change (at least in the US) with many cities enacting strict programs that we believe will catalyze tremendous focus on energy efficiency, renewable energy and advanced recycling. New York’s Climate Mobilization Act requires 50,000 of its largest buildings to reduce emissions by 40% by 2030 and 80% by 2050 and many other cities are following suit. This program places interim deadlines for hitting benchmarks to roll out in 2024 with large fines to follow for noncompliance and public energy scorecards made available.

This trend has coincided with a tremendous flood of environmental, social, and governance (ESG) interest from the capital markets that provides uncanny access to funding innovation. 2019 saw funds with an ESG focus pull in $20.6 billion in new money, over 4x what had been seen in prior years.

What We’re Interested In

While we would love to believe that every consumer and business cared deeply about the societal impacts of climate change, we are realists. Our first and foremost principle for anything in this sector is something that passes what Seth Bannon referred to as the “Montgomery Burns test” via Twitter “Build a product that Mr Burns (the prototypic self-absorbed egoistic greedy capitalist) would buy not because it’s sustainable but because it’s the best / cheapest / most convenient.” As veterans from the first clean-tech wave, we know how important it is to have solutions rooted in the economic imperative, not social goodwill or regulatory mandates. With that, we’ve been focused on areas where energy cost structures create a significant need for advanced efficiency solutions and for retail / logistics applications where sustainability generates meaningful economic advantages.

Another lesson learned from the initial clean-tech wave is to acknowledge our own technical competencies and to focus on business model innovation over technology innovation. While tremendous opportunity exists for advancements in renewable energy, battery and material science applications, the opportunities created by digital innovation across the energy value chain could be even greater. Much of the industry is rooted in asset-based models that have thus far limited adoption of even basic digital solutions. Adoption issues are further exacerbated by mis-aligned incentives and complex regulatory frameworks that favor spending on capacity and capex. These existing players have tremendous strength in their own right (the process for generating and transmitting a kilowatt to your household is a modern miracle that requires millions of workers, advanced engineering and the use of extremely sophisticated material science); however, digital competence has remained elusive. While we don’t see tremendous opportunity in selling software to legacy asset holders (whether they be power generators, utilities or energy consumers), we do see the opportunity for bundled offerings that leverage digital solutions to reduce consumption or make energy pathways more efficient. Much like in logistics, massive inefficiencies are lost along the value chain due to a lack of real-time intelligence and agency; however, new solutions are emerging that can automate responses and optimize usage behaviors to generate incalculable savings.