On paper it looked like a triumph.
Advanced Microgrid Solutions closed a $34 million Series B last summer with a “who’s who of strategic investors” — folks like DBL Partners, GE Ventures and utility-backed VC firm Energy Impact Partners. That was a hefty sum for an energy storage startup.
What hadn’t been reported previously is that AMS almost ran out of money before that funding came through. Founder and CEO Susan Kennedy saved her company by cashing out her retirement fund to invest $1 million in a bridge round.
That commitment helped her assemble a total of $5 million, which kept the company alive until the Series B closed. Securing that round also required an overhaul of the strategic vision Kennedy was pitching to investors.
The company burst onto the scene in 2014 as a tiny project developer that somehow nabbed a 50-megawatt behind-the-meter storage contract with utility Southern California Edison. That momentum carried AMS through two angel rounds and a Series A, but it wasn’t inspiring new investment in the first half of 2017.
“I finally understood that we had made our projects so famous that people saw us as a project company, and a project company doesn't scale,” Kennedy said at a recent taping of Watt It Takes, the speaker series produced by GTM and Powerhouse. “We had to transform from being a project company with a cool platform to being a platform company with really cool projects.”
Back from the brink
The near-bankruptcy experience gave Kennedy a new appreciation for the necessity of sufficient working capital.
“Really good companies die because they don't see the problem of getting out in front of their skis when it comes to managing working capital,” she said at the taping.
AMS got a taste of that risk in early 2017, as it was courting investors for the Series B.
“We were counting cash by the week,” Kennedy said.
Then, a seemingly mundane switch from unlimited to limited PTO changed the financial liability on the books. Suddenly the legal team was advising Kennedy on winding down the operation.
She rejected that suggestion outright.
“We are on the ascendency; we are doing it right,” she remembers having said at the time. “These opportunities that we're looking at are unbelievable. How can you even be having this conversation?”
The next day she cashed out her entire pension fund, which had grown during her brief stint consulting after her tenure as chief of staff to California Governor Arnold Schwarzenegger.
Anchored by her personal cash, Kennedy convinced a close group of early backers, including Schwarzenegger, as well as infrastructure investor Macquarie Capital, which gave AMS a $200 million project finance fund in 2016, to pony up a few dollars more. The infusion totaled $5 million.
Transferring her retirement savings into AMS preferred stock sent a message to investors: Kennedy was in this for the long haul, and they didn’t have to take her word for it.
“I had to put my money where my mouth was, and it made all the difference,” she said. “When a founder puts their own skin in the game, the entire narrative with potential investors changed overnight.”
With the bridge funding in place, Kennedy needed to overhaul her business pitch to secure longer-term financing.
She had won the first SCE contract by tapping her familiarity with California’s energy system, honed during her work in two governors’ administrations and serving on the California Public Utilities Commission. Kennedy knew what SCE needed help with, as the San Onofre nuclear plant retirement left the L.A. region short on local capacity, and she knew who to talk to at the utility about opening up procurements to new types of technology.
The original innovation — a behind-the-meter storage developer that drew revenue from customer energy management and utility contracts — had grown more mainstream since 2014. Harnessing the demand side of the clean energy transition was no longer a strategic differentiator.
Other companies have learned how to compete for distributed storage contracts. These days, the odds favor companies that have ample funding to compete in procurements across the country and can leverage low cost of capital to finance the project. It had grown harder to compete as a small but nimble startup, and potential Series B investors could see that.
That meant turning into a software company.
AMS had always used software to operate the fleets of customer-sited batteries it developed, but for the Series B, that software became the main attraction.
Other companies prioritize demand management, or managing equipment dispatch within a broader network of utility assets. AMS pitched its Armada platform as a specialist for controlling a customer's energy resources, anchored by (but not limited to) batteries, to achieve the best possible returns in the wholesale or retail energy markets. It would play the role of a savvy energy trader, scrutinizing as many possible revenue streams as the market allows and picking the ones that make the most sense at that moment.
"The software is taking really, really complex energy market rules and turning it into code," Kennedy said in a follow-up interview. "That code is what enables people to make money off of batteries and solar and wind and other assets."
That product has the strategic benefit of removing AMS from competition with the beefy, well-capitalized energy developers of the world. Instead, AMS can sell them software to make their projects more lucrative.
"Who needs our software? Anybody who is going to either own a project or try to make money off a project," Kennedy added.
The pitch worked, and AMS got $34 million to see it through.
In the fall of 2017, the company hired Ryan Hanley from Tesla, where he had spearheaded the complex economic optimization of the Australia battery. Hanley oversaw the condensed reorientation of AMS' product strategy, until he left in March. Another Tesla grid services alum, Seyed Madaeni, joined in January and now serves as SVP for energy markets trading.
AMS has grown to roughly 80 employees and in July moved to a larger office space in a renovated warehouse in SoMa. Kennedy told GTM she’s considering a Series C for later this year to keep the growth going.
"Right now, we could last, we could get through, but we're seeing so many opportunities to scale that we're already starting to think about going back out," she said.
Proof of concept
Despite those markers of corporate health, AMS has more work to do to prove that it’s as valuable as Kennedy says it is.
The founder has monumental ambitions for her business. Not only does she talk about bringing her investors a 10x or 20x return, she wants AMS to become the pre-eminent platform for the business opportunities that arise from an increasingly decentralized energy system.
To deliver those multiples the company would have to reach a valuation of $500 million or $1 billion, a tall order for a commercial storage company. The only energy storage acquisition that has topped $1 billion was Total's 2016 purchase of Saft, a century-old manufacturer of batteries for a wide range of applications, from the grid to airplanes and satellites.
Kennedy chose that daunting path by pursuing additional equity instead of accepting one of several buy-out offers along the way.
"The very day we won the Edison contract, we got the first offer to buy the company," she said.
That offer was rumored to come from AES, which was ramping up its own Southern California storage portfolio, but Kennedy would neither confirm nor deny that.
As the Series B pitching commenced, French energy company EDF offered to acquire AMS for its software. It ended up building the capacity in-house, and in December 2017 won a contract from PG&E for 10 megawatts/40 megawatt-hours of storage sited at commercial customers' facilities. The project design bears a striking resemblance to the AMS playbook.
Like competitor Stem, AMS maintained its independence as storage startups like Green Charge, Demand Energy and Greensmith merged with corporate behemoths. Now it must make good on its platform promise, and avoid the fate of Sungevity, which belatedly pivoted to a platform play in its final months when its rooftop solar business was running out of money.
The software focus is more of an organic evolution, Kennedy argued, because "economic co-optimization of energy products" was always part of AMS' core DNA.
As for how to stay ahead of the competition, Kennedy thinks it would be hard for others to match her team's trifecta of expertise in energy markets, economic optimization and battery operations.
Plenty of others are trying. Ultimately, AMS will have to prove itself by locking down deals as a software provider to other storage developers, and making enough money for the customers that they come back for more.