Weekly Brief

The Case of Utility Tech Startups

Elodie Michaels, Operating Advisor, Pegasus

Elodie Michaels, Operating Advisor, Pegasus

Let’s start with the obvious…there are 100’s of Utility tech start-ups.Their commonalities are:

1. Software-as-a-service subscription (SaaS) because they all want a recurring revenue,

2. The use of “buzz words” claiming analytics, AI, Smart, real time, preventative maintenance, machine learning…

3. No leader (the market is still a land grab)

4. Fast moving field with software

Slow adoption by clients

The trend is clearly a move towards more complex, cleaner, interconnected utilities, transparent activities and a much more demanding client. We are no longer talking about simply centralized Building Automation System (data), or unique co-generation tied into the grid (power), or independent water control (leak, consumption, quality). Today, we are trying to connect all things (equipment, infrastructure), all people, all information, and all utilities (electricity, gas, water, air, waste). The overall connectivity penetration rates across all building systems are currently around 15–20%, representing a significant white space within the market. The trend is to acquire real time data…A lot of it, in a uniform prioritized format, to anticipate breaks, detect faults, to reduce consumption, to increase efficiency (for people and machines), to increase reliability, quality and to provide real time diagnosis and remediation. Another trend for these utility tech startups is the strong focus on impact and purpose, not just profit.

The challenge for the utility tech start-up is overwhelming because the integration of their services often requires alliances, partnerships, mergers, acquisitions, funds and endurance that many startups simply don’t have. This race is a hybrid between a sprint to grab market shares and a marathon to demonstrate the capability to last. Most of them create a niche service and hope that the original energy giants (Schneider, Engie, JCI) or new-age energy platforms (Google or Microsoft, to name a few) will see their value and incorporate them into their “grand plan.” These small startups are often absorbed by big market giants that eat culture, products, and innovation for breakfast. Others hope that a gutsy VC/PE with a vision can create the “ultimate rollout”, without realizing the depth of the necessary cultural compromises. In many cases, these startups’ expectations for valuation are unrealistically high with few sales and an optimistic, hockey stick curve for growth (when I began in PE, a colleague once told me “if I had a penny for every hockey stick FORECAST,…”)

"The challenge for the utility tech start-up is overwhelming because the integration of their services often requires alliances, partnerships, mergers, acquisitions, funds and endurance that many startups simply don’t have"

I believe that the skills necessary to address the existing challenges in this sector run across multiple fields including: metering, distribution, grid sensors, grid balancing, data through the utility planning, Distributed Energy Resources (DER), dynamic pricing, transaction hub, DER forecasting, demand response, microgrid, onsite generation, cyberattack, blockchain for provenance, qualification, tracking and reporting, cloud platform, rates understanding, bill calculations, load profile analyses, incentives, regulations, solar, batteries, storage, Electric Vehicle (EV), Digital Twin, integration of customer information systems, Supervisory Control and Data Acquisition (SCADA) systems, Building Automation Systems (BAS), Analytics, programming…In short, the list is long. So, for the small start-ups with limited resources, the real challenge is to focus on the benefits to the customer and to configure their solution/service in a manner that is expandable (No one today can tackle all the items on the list above). In the ideal case, these benefits are real-time and measurable, and the implementation is effortless, secured, cost effective, FULLY scalable (adding people with IOT programming knowledge to support customer service isn’t scalable) and AGNOSTIC to operating systems (integrate or be integrated).

Today’s clients are demanding a cost effective, customized and comprehensive solution. The winners will be utility tech startups with management that can table their egos for the client’s benefits and provide a transformative “secure, packaged, scalable, and integrated solution.” This solution goes beyond their unique value-add by forging strong alliances with complementary firms that strive to acquire their very same clients with a different suite of services/products and value add. It is easier said than done, but with a major round of mergers, soloists will be replaced by a leading orchestra.

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