Here’s a tale of two startups, each promising software that can cut building energy waste by some 20 percent with a return on investment of two years or less, just by fixing the glaring problems in typical buildings -- and each pursuing very different strategies to get to market.
In one corner, there’s SCIenergy, the 160-employee product of a merger of Atlanta-based energy services company Servidyne and San Francisco-based startup Scientific Conservation, which has raised about $24 million in two rounds of funding from investors including General Electric and Intel. SCIenergy is aiming to bring 100 million square feet or more under management this year, with software as its backbone. But the firm is also relying on its “building doctors,” as executive VP Andy Tang described the company’s on-the-ground staff, to reach its goals -- even if paying all those engineers costs a lot more money than hosting some software in the cloud.
In the other corner, there’s SkyFoundry, a four-employee, seed-funded startup that’s managed to apply its energy platform to some 90 million square feet of building space since its founding last year -- all through licensing its software to partners. John Petze, a principal at the startup, has experience with BMS vendors like Andover Controls, Teletrol Systems and Honeywell acquisition Tridium -- and he has no interest in getting involved in the nuts-and-bolts business that goes on inside buildings.
In a world where commercial buildings use about 20 percent of all consumed energy -- and waste about a third of that -- targeting the “fifth fuel” of efficiency is a no-brainer. But the market presents longstanding economic and regulatory problems that have kept most buildings technology-free when it comes to using their lights, HVAC systems, IT equipment and other electricity loads more efficiently.
That’s a potential market big enough for multiple business models to succeed, if they can find the cheapest and most effective way to overcome inertia. But while giants in the field like Siemens, Honeywell, Schneider Electric and Johnson Controls can take years and spend tens of millions of dollars to bring new software to market, startups have limited time and cash to make a big splash.
SCIenergy and SkyFoundry seem to have started out from similar places, but have taken different tacks to reach their already significant share of this new market. Which tack will better reward investors? Here’s a broad-brush portrait of how they differ and how they align.
SCIenergy’s “High-Tech and High-Touch” Model
“High-tech and high-touch” is how Tang describes SCIenergy’s current approach. Tang, who left the job of Pacific Gas & Electric’s chief smart grid guru to join SCIenergy earlier this year, has a grasp of the on-the-ground challenges that building owners and utilities face in getting efficiency projects to perform to their specifications -- and software alone can’t do it, he says.
“The classic software guys want to say, 'I’ll make a really good software tool and get it out to market,'” Tang said in an interview last week. “What we’ve realized is that buildings are different, energy efficiency is different. Energy efficiency has a more bespoke component to it -- it has an actual need for these building engineers.”
That’s a change from the concept initially pioneered by Scientific Conservation, a startup founded in 2008 with the clear goal of leveraging the power of software to avoid the costs of boots-on-the-ground style building energy management. (SCIenergy lost its founder John Pitcher to Serious Energy this summer, and has since sued the rival for alleged misappropriation of trade secrets and other causes of action.)
SCI’s initial offering was a SaaS-based “continuous commissioning” software package, meant to maintain a building that’s just had an efficiency tune-up to prevent the inevitable “drift” in efficiency gains over time, as things break and occupants start to mess with the preset thermostats and lights.
SCIenergy’s current iRCx software portfolio adds energy use and price information from meters and submeters in the building, to compare with the “bottoms-up” view presented by the building system manager. Together, the systems can deliver energy savings of some 20 percent, beating the 12 percent to 20 percent savings delivered by boots-on-the-ground forms of commissioning, Tang said.
More importantly, they can maintain that over time, while typical building tune-ups lose from 20 percent to 80 percent of their performance in about two years, Tang noted. But while software alone can catch many problems that engineers and maintenance crews can’t see, technology can’t replace the human touch either, he said.
“We had a bunch of people who were very good at IT, and good at understanding HVAC -- but in a packaged manner,” he said. “Once you put it in a building and turn it into an end-to-end system, that’s where our guys no longer had the understanding, and where the Servidyne guys had the understanding.”
But how to pay for all those building doctors? While most energy services companies charge building owners for projects, SCIenergy charges a subscription for its service. “We’d like to be the face to the customer, deliver the value,” is how executive VP Dave Weinerth described it. When SCIenergy’s system identifies projects that could save energy, “we can either do some of those while our folks are on site like an engineering services firm can do, or manage the ecosystem of partners” to get it done, he said.
Tang declined to specify how SCIenergy’s subscription payment model may compare to traditional project-style financing in terms of revenues. The company doesn’t disclose its customer list or real estate under management figures, which stood at about 15 million square feet as of last fall. A war chest of seed and starting capital, a 2010 $5 million round and this spring’s $19 million Series B round has given it some cash to work with, and while SCI paid $12.5 million for Servidyne, it also got an existing line of business from the company. It now manages buildings in North America, Europe, Asia and Australia, with some showcase clients including the Price Waterhouse Coopers tower in Toronto — though promised collaborations with GE and Intel have yet to emerge.
SkyFoundry’s Stick-to-Software Model
John Petze, co-founder of SkyFoundry, doesn’t disagree that buildings need a good deal of hands-on work to realize their full energy efficiency potential. But for the time being at least, the Richmond, Va.-based company is steering clear of the high-cost implications of entering it directly.
Instead, the firm licenses its software to partners, a long list of names such as Activelogix, Airmaster, Airon, Advanced Power Control, Environmental Systems Inc., Energy Systems Technology, HVAC Concepts and the like — not exactly household names, but familiar to building facilities managers and other such professionals.
As for whose buildings they’re using SkyFoundry’s software on, Petze can’t identify too many -- though he did mention two customers who have reported a combined $3 million in savings with two projects that paid back in less than a year. But for the most part, SkyFoundry is content to quietly build its business via behind-the-scenes partnerships, Petze told me last week.
“I have no interest being in the middle of religious battles” over whether to sell software as a service or as a product, whether to host building energy management onsite or in the cloud, and other such complications, he explained.
What SkyFoundry does do is provide software that captures data on wasted energy data from buildings with or without instrumentation, and feed it to facilities managers in an easy-to-understand format, he said. Partners have applied the software to about 1,000 buildings, at levels ranging from shallow benchmarking and analysis to “very deep” continuous commissioning fully tied into building equipment and sensors, he said.
Like SCIEnergy, SkyFoundry digs into multiple sources of data -- BMS data, sensor and control data, real estate records and occupancy figures, weather reports and the like -- and feeds that data into an analytics engine to figure out a building’s optimal energy usage and where it’s deviating from the norm. Return on investment can range from months to years, depending on how quickly building owners decide to tackle their challenges, but SkyFoundry’s partners would be the ones responsible for picking and choosing which retrofit projects to take on.
“We’re a partner model, and I think you’ll find that most successful businesses within the facilities market do that,” he said. While he concedes that moving to a service model may be more lucrative in the long run, Petze contends that “it’s still not a good enough reason to be something we’re not.”
Petze wouldn’t disclose the size of SkyFoundry’s seed round with Battery Ventures, or the amount of internal funding, though one would assume it’s an order of magnitude smaller than the investment raised by the likes of SCIenergy or other startups in the building software field, such as Serious Energy.
While Startups Strive, the Big Boys Move In
But even well-funded startups will be competing with the big boys of energy management, which have a lot more cash to devote to the market. The question is how they will apply it -- and how that may or may not shut out challengers.
Big BMS vendors like Siemens, Honeywell, Schneider and Johnson Controls have been admittedly slow to add analytics to their data-rich building controls, a fact Petze attributes to typical corporate cost control and inertia. But they’ve also been buying building software startups like crazy over the past two years or so, and the fruits of those acquisitions and internal investments are starting to emerge.
Just this month, Johnson Controls launched its Panoptix software platform for linking BMS, metering, weather and security data from multiple buildings and managing it from the cloud, complete with promises of a “connected community” of experts linked via social networking. Last week, Schneider Electric launched the latest line of its StruxureWare software, the brains behind its broader EcostruXure energy efficiency service, promising a platform to manage energy systems in buildings, data centers and industrial facilities on an enterprise-wide scale.
Just how these in-house efforts will compare to -- and interact with -- software from the likes of SCIenergy nor SkyFoundry remains to be seen. Both are integrating their software with building control systems from the big vendors right now, but that market may start to be colonized by the BMS vendors themselves over time, not to mention IT giants like IBM that are moving into building energy management.
Not that these two startups need a fully equipped building to work some of their magic. Only about half of the country’s larger buildings (those over 100,000 square feet) are equipped with BMS technology, and fewer than one in ten buildings smaller than that have any kind of intelligent building controls. That market is attracting other software startups like Retroficiency and FirstFuel, which say they can identify efficiency improvements without sending a single energy auditor into a building or installing a single sensor.
Both SCIenergy and SkyFoundry are also working with “control-less” buildings, whether to do first-stage energy audits or to prove the value of investing in more sophisticated technology over time. In that role, they could be seen as the advance agents of the big BMS vendors, and may well find ongoing partnerships evolving from those relationships.
All in all, there’s a wild West feel to the building energy efficiency field right now, to quote more than one analyst’s take on the sector. Taking that metaphor to extremes, that might put SkyFoundry in the role of hired gun, SCIenergy in the role of the settler coming in to colonize the territory -- and the Schneiders, Johnson Controls and other building management giants rolling in with the inevitability of the railroads. We’ve yet to see how this frontier will be won.