Serious Energy, the green drywall and windows company that’s spent the past two years pushing into building energy efficiency software and financing, is shedding key staff as it officially abandons those lines of business to refocus on its building materials core.

It’s a stunning reversal for the Sunnyvale, Calif.-based startup with $140 million in VC cash. Over the past several months, Serious has been bleeding talent, losing roughly half of its top executives, including key players in its energy efficiency software development team and sales team.

Among those who have departed is Claire Broido Johnson, the SunEdison co-founder and former Department of Energy efficiency advisor who helped launch Serious Capital, the startup’s attempt to leverage $1 billion in financing to get its software and green windows into the market.

Other key execs to leave include CFO, co-founder and director Pat Murray, who left in September 2011 to become CFO of Cavendish Kinetics; senior vice president Mark Mitchell, who left in October 2011; CTO Brandon Tinianov, who left in October and is now advising electrochromic window startup Soladigm, and Vice President Albert Yanez, who left in March.

Most notably, Kevin Surace, the man who since 2008 has led Serious on an ever-changing set of business strategies -- green building materials, energy efficiency software, project financing -- is no longer CEO. He lost the job in February, and is now listed as chairman and co-founder, while Marc Porat, co-founder of Serious and a handful of other Silicon Valley green startups, has taken the helm.

Not unexpectedly, reports from within the company are not good. People with knowledge of the company have told Greentech Media that the company is losing money in its windows, software and financing endeavors. One person with knowledge of the company added that there had appeared to be little or no effort underway to integrate Serious’ separate business lines in an effective way.

The Do-It-All Green Building Startup Goes Back to Basics

“We’ve entered an ongoing phase of our business to focus on our core business, which is materials,” is how Porat explained the change to me in a Monday interview. “The consolidation around materials started late last year. Everything follows from that. What happened last year happened last year; what’s happening this year happens on my watch."

Serious has raised more than $140 million from investors, including New Enterprise Associates, Foundation Capital, Mesirow Financial, Rustic Capital, EnerTech Capital, Navitas Capital, Cheyenne Partners, Saints Capital, VenturePoint Partners and Staenberg Ventures. In November it raised another $3 million, out of a proposed $33 million round, according to documents filed with the Securities and Exchange Commission. 

But what has it done with the money? Well, after two years of acquiring and hiring its way into competition in the building energy efficiency software space, it’s returning to what it started out doing in 2002, Porat said: making and selling soundproof drywall.

QuietRock, as the product is called, “is a very good channel product, and it ends up going to a very large number of dealers,” he said. Still, there’s little about it that makes it “greener” than alternative soundproofing methods, unless you count that it’s easier and less material-intensive to manufacture.

“It’s not necessarily a cleantech sell,” Porat said. “We’re finding that many of these things are not cleantech first, but economic first."

Porat said less about Serious’s EcoRock “green” drywall business, which was meant to cut out the economic and environmental costs of burning lots of natural gas to make gypsum, the key ingredient of drywall. EcoRock used a chemical process to cut out the need for all that heat.

That was an attractive proposition when natural gas prices were over $10 per million BTUs, but now that they’re down to $4 to $5, it doesn’t really pencil out anymore, Porat said. Even so, it’s not clear how well EcoRock had caught on with the marketplace -- and the construction crash of 2008 didn’t help matters.

Nor has it helped the company's Serious Windows' business. Serious got into the green window game in 2008, raising money and buying bankrupt window factories in Chicago and Pennsylvania. That earned Serious a visit from President Barack Obama in March 2009, which in turn led to a spurious attack in January 2010 from the right-wing group Freedom Foundation of Minnesota, echoed by Fox News, noting that a Serious executive was married to prominent Department of Energy advisor Cathy Zoi at a time the company (along with many others) was getting work using DOE efficiency stimulus grants.

Serious has had some showcase projects for its windows, including the Empire State building. But it hasn’t yet succeeded in the broader market. In February, it closed its Chicago factory and laid off about 50 people, blaming a terrible construction market and a “collapse in demand for window products.”

It’s still making windows in Pennsylvania and Colorado, but with the market as poor as Serious says it is, it’s unclear when those may begin to make money. Porat noted the addition of a new window film product called iWindows, which would be cheaper than replacing lots of windows, but it faces plenty of entrenched competition on that front as well. 

Software, Services to the Rescue?

In the meantime, Serious has been busy on its next incarnation as a building management software vendor. To get there, the company raised $19 million of a planned $56 million round in June 2010, and in September of that year bought Valence Energy, a startup promising software to link buildings into microgrids. The idea was to measure and control energy-consuming devices, and balance them against the supply of grid power and on-site green power, to figure out when to turn down building systems based on power prices, weather and other factors.

Valence’s technology has served as the core of Serious Energy Manager, the cloud-based platform that Serious launched in late 2010. IDC Energy Insights ranked Serious’s software offering as a potential coequal to IBM and EnerNOC in terms of building analytics sophistication -- good company indeed.

But at this point, Serious Energy Manager is “now pointed at a different market strategy,” Porat said. “We’ve learned a lot, and now we’re going at it in a different way, which is quite interesting and creative.”

Still, Porat wouldn’t give any details on just how Serious was repurposing its software and other building energy management technology, which includes building energy management system maker Agilewaves, which it bought in November for an undisclosed sum.

In the meantime, a person with knowledge of the matter said that all but a handful of the Valence team have left since the acquisition. Those who have left include Alexis Ringwald, a co-founder who has departed to launch an educational venture, and Alberto Fonts, one of two brothers in charge of Valence’s engineering, who left to join rival building energy software startup BuildingIQ in December. His brother, Agustin Fonts, continues to list his job as Serious product manager on his LinkedIn page.

Serious also hired about five employees from demand response company EnerNOC to form its sales team. Of those hires, at least three have left -- Matt Stavis has rejoined EnerNOC as business development manager for energy efficiency, Dave Schrock wrote in an email that he has left to work for Viridity Energy, and Chris Kubik wrote in an email that she has left her strategic sales manager job at Serious.

Hires From Rival Spark Lawsuit

Serious has hired key technologists at other rival companies, but those hires haven’t always gone well. In June 2011, Serious hired John Pitcher, founder of rival efficiency software startup SCIEnergy, along with the company’s VP of Sales Chip Pieper and several other employees at the startup. That led SCIEnergy to file a lawsuit in July against Pitcher and Pieper, as well as Serious as a company, for alleged misappropriation of trade secrets.

Serious denied the charges, and the parties reached an undisclosed settlement last week, leaving unclear just what financial toll the lawsuit took on either company. But Pitcher told me in an interview that he personally settled with SCIEnergy for $10,000, plus the agreement to not develop software based on his founding work at the company until July 2012, but with no admission of wrongdoing.

All that for a job that lasted about three weeks. Early in the case, a judge issued a restraining order against Serious, Pitcher and Pieper preventing them from working together, Pitcher told me. That means that Serious didn’t get a chance to tap his talents and those of the rest of the dozen or so SCIEnergy employees who left last summer. Pitcher noted that Serious gave all those people generous severance packages.

As for Pieper, his LinkedIn page lists him as vice president of business development at Sensus MI, maker of fault detection and diagnostics software for refrigeration and HVAC systems, and makes no mention of any past position with Serious.

Serious Capital and the Financing Challenge

Another blow to Serious was the departure of Broido Johnson, who left in February after 14 months at the startup. As a co-founder of SunEdison, the startup that broke open the market for solar power purchase agreements (PPAs), Broido Johnson was seen as a key connection to the financing needed to reach Serious Capital’s audacious goal of leveraging $1 billion in PPA-style energy efficiency projects.

Now, Porat said, that business is on hiatus. “Capital is a big idea. There’s a huge need for that out there,” he said. “But our capital resources right now are focused on our core business, on our core profitability.”

The basic idea was for Serious to “own” the project and its share of revenues from lower energy bills, then turn around and offer the building owner a set power price that instantly lowered their bills at no cost. That, of course, would be a way to drive business for Serious Energy Manager, which would monitor and verify project savings to satisfy its contracts with building owners, as well as potentially for its building products.

Serious has said it is working with international property management firm Grubb & Ellis to offer Serious Energy Manager to its properties for free, and said last year that it planned to raise $100 million in business this way for the White House’s $4 billion Better Buildings Challenge. Porat said that the relationship with Grubb & Ellis remains intact, but wouldn’t say how the two planned to work together.

Competition Fierce, Markets Unclear

Of course, Siemens, Schneider Electric, General Electric, Honeywell and Johnson Controls already do billions of dollars in projects financed in this manner, via their work as energy efficiency service companies (ESCOs). But that work is almost entirely limited to government, education and health care property owners. Commercial buildings have been a much harder nut to crack, with demands of paybacks in years, not decades, and split incentives that make it hard to spread the value of energy savings between tenants and owners.

Even so, Serious isn’t the only one trying to break it open. In March, rival SCIEnergy bought Transcend Equity, a startup with a similar PPA-style efficiency retrofit model and an existing arrangement with Japanese trading and investment giant Mitsui & Co.

Don’t forget the incumbents, either. Schneider Electric, Honeywell and Johnson Controls have all launched platforms in the past year promising to tie multiple building control systems together and collect, analyze and present their energy usage data.

They’ve also all been buying up startups left and right to expand their suite of energy services they can present to clients, with the long-term goal of combining smart building, smart grid and smart energy market technologies into a single operating unit.

Serious appears to have been playing a game of acquiring its way to preeminence in the green building space. That's a hard road for a startup to take against billion-dollar giants, made harder if it can’t retain the top talents at the heart of the effort.

Now it remains to Porat and the company’s new executive team to retrench, prove that Serious can stay alive on soundproof drywall and energy-efficient windows in a down construction market, and do what they can with the IP they’ve acquired over the last few years.

Tags: california, demand response, doe, drywall, ecorock, efficiency, energy efficiency, green building, green windows, kevin surace, marc porat, scienergy, serious capital, serious energy, serious windows