Last summer, Energize released our comprehensive “Electrifying Everything” investment thesis, including our proprietary deep dive research report, the culmination of our 10-part blog series and our list of the top 30 software innovators applying digital solutions to help accelerate widespread electrification. In brief, we believe electrifying everything – and powering those electrons with zero-carbon clean energy – is the optimal near-term strategy to achieve decarbonization. And we believe the software companies helping deploy electrification technologies (from solar panels to electric vehicles) faster and more efficiently are in a prime position to grow their enterprise value.
Of course, anyone who has been following the markets in the last year knows that the startup and technology environment has been turbulent. So how has the landscape of companies “Electrifying Everything” changed in the last year? And how have the climate software companies from our class of 2022 fared? Roughly 12 months later, we’ve revisited our thesis and added 11 new companies to our list in the 2023 Edition of “Electrifying Everything.”
Download the full report here, and read on for a snapshot of the report’s insights.
Despite the last year’s challenging market environment, the climate software sector has shown remarkable resilience. Look no further than our “Top 30 Software Innovators of 2022” list for substantiation. Based on The BVP Nasdaq Emerging Cloud Index’s metrics, the performance of emerging public cloud software providers across the industry has decreased by 24.6 percent year over year, while the performance of the median company on our top 30 list has increased 140 percent. All 30 companies remain in operation, and many have achieved significant performance milestones.
Additionally, in the past 12 months, our 2022 Top 30 cohort:
- Raised $1.8 billion in total capital.
- Had a median YoY valuation increase of 2.4x.
- Achieved an aggregate enterprise value of $19 billion.
This resiliency was also evident across the broader market. Software companies launched new products and partnerships that are quickening the pace of electrification, from Aurora Solar’s integration with Mosaic to streamline solar sales and project financing, to Voltus’ and Resideo’s demand response program expansion, to Monta’s partnership with Fastned to make electric vehicle (EV) charging more accessible throughout Europe. And despite a downturn for M&A activity at the macroeconomic level, “Electrifying Everything” companies were involved in eight major acquisitions – either as the strategic acquirer or the acquired – within the last year alone.
As we look ahead to the next year, we believe the urgency and opportunity for climate software innovators remains, though with new considerations given the current conditions of the climate tech market. At Energize, we’ve identified five top themes that we’re watching as we evaluate the most promising software companies powering climate innovation.
1. Clean energy installers and developers are now heavyweight software buyers.
As renewables installers and developers increasingly outsource functions like project design and management to third parties, companies that offer automated and scalable software solutions for renewables – like PVcase and Pexapark – are quickly growing their revenues and total addressable markets (TAMs). We are seeing renewable energy customers purchase multimillion annual contract value software deals with increasing frequency within our portfolio and the companies we evaluate. Meanwhile, these contracts are expanding at a rapid clip – the top five renewable energy and EV customers for four of our portfolio companies expanded their contracts by 845 percent over the past five years!
2. High interest rate environments put CFO offices in the limelight.
The cost of capital has surged throughout the last year, highlighting the value of technology that can help reduce financing and transaction costs and risks. According to internal analysis, we estimate that a sustained high interest rate environment of more than 4 percent could add 25 to 40 percent lifecycle costs for electrification projects. And as shakeups in the banking sector continue to underscore the need for fintech innovation, we believe the potential for sustainable infrastructure project finance software like Banyan Infrastructure (an Energize portfolio company), Perl Street and Odyssey shines even brighter.
3. The “soaring soft costs” challenge is replicating across energy technologies.
U.S. residential solar soft costs remain stubborn at 65 percent of upfront costs. The cost breakdown for EV charging is no better – we estimate 80 percent of project costs in EV charging are driven by soft costs. We hypothesize that virtual power plants (VPPs) and residential heat pumps will be the next two emerging electrification technologies to face rising soft costs alongside declining unit costs (for a complete breakdown, see Energize’s mental model for energy technology innovation cycles). Software companies that automate time- and labor-intensive processes in these markets to drive down costs – like Sealed – will be increasingly valued.
4. Interconnection and siting challenges open the door for software solutions.
Bottlenecks from long interconnection queues and intensive pre-construction processes are currently slowing the pace of renewables deployment. We believe companies that can help open the floodgates by increasing transmission capacity and simplifying site assessments will be rewarded. We have now seen numerous examples of how transmission grid enhancing technologies (GETs) could increase available transmission capacity by 50 to 100 percent (or more) at minimal cost. Climate software companies like Neara are already stepping up to provide streamlined risk mitigation and assessment solutions.
5. Europe is the mad science lab fostering the rapid electrification of everything.
For a glimpse into the future of rapid electrification, look no further than Europe, where adoption rates of solar, EVs, heat pumps and grid flexibility markets are five to 10 years ahead of North American adoption rates. EV share of new car sales exceeds 5 percent in 15 separate European countries, with many above 15 to 20 percent (the U.S. crossed 5 percent in Q4 2021). European heat pump sales are outpacing the U.S. by more than two times. We believe the software companies helping increase the scale and efficiency of electrification technologies in these geographies – like our portfolio companies Monta and TWAICE (based in Denmark and Germany respectively) – are poised to grow alongside the booming markets they serve.
With these themes in mind, we present the full list of Energize’s Top 30 Software Innovators of 2023 across each of our “Electrifying Everything” categories. These software innovators are becoming the operating systems for economy-wide electrification. They’re helping deploy today’s climate solutions at scale, and they’re doing so while tagging themselves to top growth trends – helping tackle deployment barriers while serving high-revenue verticals and geographies. We’re excited to track their progress, and we look forward to continuing to support mass electrification throughout 2023 and beyond.
Per our election criteria, each company in the list should have the following characteristics:
Bold italics denotes new entrant
*Denotes Energize portfolio company
- Aurora Solar*
Clean Firm Power
- None currently
Building Electrification & Efficiency
Not included in our list of the Top 30 Software Innovators “Electrifying Everything” but think you should be? Let’s talk.
Download the full report here.
This article represents the views of the author and is provided for informational purposes only. It is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Readers should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Information is subject to change based on market or other conditions.