EcoFactor, a residential home energy management firm, raised about $5.9 million from greentech venture firms Rockport Capital and Claremont Creek Ventures earlier this year.  Several years elapsed between their founding in 2006 and their eventual funding. 

Last week, at a brilliantly moderated MIT/ Stanford VLAB event, John Steinberg, EcoFactor's CEO, told the entertaining and somewhat harrowing tale of how the company's business model morphed as they sought venture capital funding on Silicon Valley's Sand Hill Road.

Greentech Media's Editor-in-Chief, Michael Kanellos, describes EcoFactor's business in this manner:

"EcoFactor combines a live weather feed with a computerized simulation of a home and automated controls to fine-tune a [home's] thermostat for unobtrusive energy efficiency. A heat wave is due to hit in the middle of the afternoon? The system might pre-cool the house with relatively cheap power until 1 p.m. and then let the air conditioner coast during the peak period from 2 p.m. to 6 p.m."

It's essentially a personalized solution for managing residential energy use -- software-as-a-service (SaaS) that includes a two-way communicating thermostat that creates a dynamic heating and cooling system that can save homeowners up to 30 percent on their HVAC bill without sacrificing comfort or giving up control, according to the firm.

Back to the funding saga: Steinberg and team went out to venture capitalists, begging bowl in hand, with version one of their PowerPoint and a business plan based on the premise that the biggest barrier to consumer adoption of energy efficiency measures was the lack of useful personalized energy usage information. The original value proposition was a Web 2.0-type site that would deliver that kind of information.  That approach resulted in zero funding -- and lot of time and effort invested in improving the product.

After spending some time getting smarter about the ways energy is wasted in the average home, epiphany number one was that space heating and cooling account for about half of the energy in the home.  And that was the "pressure point" -- i.e., the key to significant cost savings.

Epiphany number two was that EcoFactor couldn't rely on the power of information alone to generate savings -- but that an automated HVAC optimization service, based on individual consumer preferences and the unique characteristics of each home, could yield big savings without the need for much behavior modification.   

By now, the company's founders had met with dozens of investment firms and were up to somewhere around version fifty of their PowerPoint investment pitch.

The new business model turned out to be the inflection point for the startup.  VCs liked the new idea and their interest level was real and rising.

EcoFactor tossed their old product, old revenue model, and old go-to-market strategy, while still retaining their emphasis on analytics, consumer value and quick ROI.

Since then, the startup has gained some traction in the marketplace.  But it took a long time -- in addition to the usual dedication and insanity required to be an entrepreneur. 

For entrepreneurs looking to go down the VC-funding road, remember these stats:

  • Number of powerpoint revisions: 117+
  • Number of VCs pitched: about 40
  • Numbers of months without a salary: 40

Final lesson from the CEO: Refusing to take "no" for an answer is imperative, but how you handle that "no" and negotiate yourself through the process is crucial. Don't give up, but don't dismiss negative feedback either.  Listen to the feedback and improve the story by addressing the weaknesses seen by potential investors.