From R&D to P&L

Last week, the leader of the Federal Opposition announced a $15bn reconstruction fund aimed at job creation if Labor wins government, saying Australia must be a country “that makes things”. With a specific focus on cars, trains and ships, this policy pledge sounded like a clarion call to the metal-bashing industries of old (and recalls either an 80s movie or a 60s pop song…). This followed the launch by the Victorian government of the $2bn “Breakthrough Fund”, aimed at enhancing the State’s R&D capabilities.

While this type of government largesse and targeted economic stimulus sounds welcome, I can’t help feeling the money could be better spent on covering some basic building blocks in the search for innovation and economic development – upgrading the primary, secondary and tertiary education for the 21st century (e.g, an integrated STEAM curriculum); funding budding entrepreneurs (e.g., job maker for the newly self-employed, especially those under 25); enhancing the SME loan market (e.g., making it easier to access working capital without first having to own real estate); and overhauling the procurement and “panel” regimes in the public and private sectors (e.g., giving more equitable access to start-ups and scale-ups).

The “reconstruction fund” talks about making equity stakes, and co-investing with the private sector and superannuation funds. This sounds great, but is it the role of government to pick winners? Surely it should be in the business of enabling innovation and facilitating the growth of SMEs (which is where much new employment is created, rather than in legacy industries and/or declining sectors). Also, because of the way their mandates are written (as well as their ROC models and fiduciary duties), traditionally, superannuation funds and other institutional investors find it very difficult to write cheques for less than, say, $200m. Such a figure is generally far beyond what most start-ups or scale-ups are seeking – so these institutional funds are often placed with external managers who can slice them up into smaller allocations, which adds to the overall investment costs.

The role model for the $15bn fund is the Clean Energy Finance Corporation, which returned a cumulative 4.75% as at June 30, 2020. Certainly a higher return than the cash rate, but hardly competitive with other asset classes or investment returns, if that is a key measure of success. The CEFC performance is currently running below its own benchmark, and while the efforts of the CEFC have no doubt led to more jobs in the renewables and sustainability sectors, hard data is not easy to come by. In its favour, the CEFC has made a large number of small scale investments, which may well provide a template for Labor’s manufacturing fund (although it’s not evident what form those investments have taken).

In speaking to a range of people over the past few weeks (civil servants, start-up founders, VCs, CEOs of listed companies, etc.), the following mixed messages emerged:

  1. Well-meaning government officials tell you that they are “here to help” founders, start-ups, entrepreneurs, SMEs etc. Problem is, these bureaucrats can’t effect necessary systemic change in the way innovation is funded – they can only operate at a transactional level. Also, many entrepreneurs would politely suggest that the government could do more by getting out of the way…
  2. One VC took issue with my suggestion that Australia needs a better manufacturing supply chain that produces more local components that are interoperable/interchangeable, and which also encourages more user-serviceable (and therefore more sustainable) devices and appliances – he was advocating in favour of sealed units and thus a continued dependance on the manufacturer/distributor service model; whereas I think self-sufficiency in manufacturing also means more consumer choice in post-sales support.
  3. An innovative Australian fintech chose to list overseas because the local capital markets did not “get” its business model, while another locally-listed fintech faced similar obstacles with its own listing.
  4. A start-up founder looking for a modest amount of money for an R&D project (in the sustainability sector) had already secured an equal amount of funding “in kind” from a government agency – but was finding it somewhat difficult to match it with the equivalent private capital.
  5. Neighbours building a passive house have had to import energy-efficient triple-glazed window units – because they are not easily available locally, and the only supplier they could find would have cost at least 50% more.

Finally, the new Labor policy (especially if it aims to support the EV sector) will need to demonstrate it has learned the lessons of Australia’s subsidised car industry, and that the proposed fund is part and parcel of an integrated approach to public transport infrastructure, encompassing high-speed inter-city trains, smart cities with self-drive vehicles, better orbital routes connecting suburbs, and regional hubs that aren’t reliant on cars.

Next week: Synchronicity

Startupbootcamp’s Virtual Demo Day

Not to be defeated by the Victorian government’s Stage 3 Covid19 restrictions, Startupbootcamp decided to stream the latest Energy Australia Demo Day online. It was a bold move given that a key value of these events is the opportunity to see and meet the startup founders in person. But to the organizers’ credit, and with support from their corporate sponsors and mentors, as well as the founders themselves, it was an impressive event, and managed to connect the teams with their audience effectively.

The nine projects in the order they presented (website links embedded in the names) were:

17TeraWatts

Focused on “meeting the demands of the new solar customer”, 17TeraWatts monitors residential solar energy systems via a combination of data automation and behavioral science. It achieves this via “Bodhi 2.0”, a digital assistant for modern energy companies, designed to be the “heart and brains of home energy systems”. Once installed, it is forecast to to generate a recurring revenue stream for the 25-year life of a solar system, by delivering reporting and customer leads. At the other end, solar consumers are willing to pay for more information about, awareness of and control over their energy systems ans consumption. Currently exploring a partnership with DiUS, Bodhi 2 is also being deployed by a Victorian electricity retailer.

Renbloc

Another team addressing energy efficiency management, Renbloc provide a solution to help consumers by bringing transparency to the verification of renewable energy sources. For a monthly fee, it brings real-time monitoring and optimization to consumer energy consumption. Renbloc are also working with companies such as Asahi and Energy Australia to provide verification “certification”, a form of energy labelling that can be applied to a wide range of consumer products.

Machine Dreams

The founders at Machine Dream are deploying machine learning and data analytics to monitor equipment failure, by detecting defective power assets owned and managed by energy distribution networks. Using system-generated photos to train the algorithm, Machine Dream claim significant reduction in the time and cost it traditionally takes to monitor network equipment, and with higher accuracy rates. The overall effect is to enable the frequency of assessment, and the reduce the cost of assessment. Currently in trials with Ausnet to monitor the “poles and wires”, Machine Dream can also be used for other infrastructure assets such as bridges, railway tracks and roads. The team plan to offer licensing and SaaS business models to asset managers and manufacturers.

GenGame

This is a customer engagement platform, delivering consumer apps for energy retailers to help their customers track retail energy bills (optimization, rewards, incentives, etc.) using customized profiles. The founders claim that customer relationships become stickier, via the low cost/low touch engagement. The team comprises a mix of creatives, energy industry experts and software developers to license client solutions which are priced on the set-up costs and the number of end users. Apparently, only 10 out of 40 energy retailers in Australia have a mobile app, and GenGame has two pilot projects with Energy Australia.

Energy Master

Another solution for energy efficiency, Energy Master is focused on helping corporate clients manage their utility bills. Essentially a business information platform, the application reviews consumption, taxes and fees, tariffs and off-sets, carbon reduction and water savings. It charges 0.5% of managed energy costs as a recurring fee, and does not require any hardware investment by clients. Currently running clients trials with Energy Australia.

ELDO MeterStack

This team is also addressing energy data analysis, but at the level of the grid, particularly at the fringe end of the distribution network. Their thesis is that consumers are not engaged, and don’t know how to understand their utility data or how to value it; meanwhile, energy companies cannot access consumer data. Positioned as a data market place between consumers and energy service providers, it offers a turnkey solution for the new breed of “digital utility” companies, and is working with DiUS and MHC to support distributors and the fringe of the grid.

Energos

Describing its solution as “intelligent nodes for distributed energy systems”, Energos is using AI for energy monitoring, management and optimization. Focused on business and industrial clients, the system can operate across multiple sites and in multiple countries, ideal for multinational corporations. Adopting a monthly subscription fee model, Energos is working with Energy Australia on a pilot solution for a business client.

BEAD

Using a combination of sensors and software, the team at BEAD are delivering intelligence solutions to help building owners, managers and occupants to manage “over heating, over cooling, over lighting”. With tag lines such as “listening to your building”, and “intelligent buildings you deserve”, BEAD is aimed at telcos, smart cities and BMS & HVAC vendors. Their system analyses occupancy flow, and develops digital models of buildings to track body heat (an important consideration in the Covid19 era, as well as events such as building fires, floods and earthquakes). They also work with building insurers to deliver real-time monitoring via Blockchain and smart contracts. Claiming to deliver 30% savings in energy optimization and efficiency, BEAD is working with Energy Australia, Hydro Tasmania and Asahi.

Liquidstar

This startup deploys Blockchain enabled apps to monitor their partners’ IoT connected hardware (batteries and container charging stations). Liquidstar is an IoT solution designed to build a “wire-less grid”, with the aim of removing diesel and methane power from communities that do not have access to grid networks. One potential use case could be in battery management for Covid19 quarantine centres.

Next week: Can we come out now?

My Four Years in Crypto

It’s four years since I began my career in Blockchain, crypto and digital assets. (I can’t claim to be an early adopter, although this blog first mentioned Bitcoin in 2013.) My knowledge on the topic was quite rudimentary at the time, and it was like jumping in at the deep end when I joined the small team at Brave New Coin. Apart from the 3 co-founders, there were 3 other core team members already on-board, so I was lucky 7.

My professional career has mainly been in law, publishing and financial services, plus a range of consulting, contract and freelance roles across various sectors. My point of entry into crypto was my experience with Standard & Poor’s and Thomson Reuters in market data, indices, analytics, content, research and portfolio tools – the basis of Brave New Coin’s business, and therefore an appropriate fit with my experience and skills set.

In the past four years, I have been privileged to witness at close hand the market exuberance of 2017 (fuelled by the ICO phenomenon and the incredible bull market), the regulatory backlash of 2018, the crypto winter of 2018-19, and the stop-start messages coming from regulators, markets, institutional investors, central banks and major corporations.

Getting to grips with some of the technical and other idiosyncrasies has been a steep learning curve – but I have tried to adopt a dual approach to expanding my own understanding. First, focus on the major components before getting to far into the weeds on any particular area of technical detail; second, create a personal framework of analogous concepts, and identify practical metaphors that you can also easily explain to others – self-education is critical to personal survival, but sharing knowledge is the path to wider adoption.

It’s also important to maintain an anchor based on your original point of entry – not only does that become a constant point of reference, it also enables you to build areas of personal expertise and domain knowledge. So, while many early proponents and adopters were drawn to crypto because of their underlying belief in Libertarianism, or their fascination with cryptography, or their distrust of centralised banking systems, my own points of reference continue to be around financial services (asset origination, tokenisation, digital wealth management), market data (indices, industry standards, benchmarks), regulations and analytics. While I am an advocate for Blockchain technology, I am not a hardcore technologist, but I realise that it will take time for issues such as scaling, interoperability and mass adoption to be fully resolved.

At the very least, a great deal of that market experience (especially driven by the decentralized, project-intensive and ICO-related activity of 2016-18) has demonstrated the following truths about Blockchain technolgy:

1. This is a new model of capital formation – just as companies no longer have a monopoly on human capital, banks and traditional intermediaries no longer have a monopoly on raising financial capital

2. This is a new means of asset creation, wealth distribution and market access – backed by Blockchain solutions, crypto is the first asset class that was retail first, in a distributed/decentralized bottom-up approach to issuance

3.This is a new platform for commerce – whether via tokenomics, network incentives, value transfer, smart contracts or programmed scarcity

4. This represents a paradigm shift in governance models – via the use of decentralized, autonomous, trustless, consensus and incentive-based operating structures and decision-making systems

5. This introduces new principles of distribution – assets are consumed closer to the source of value creation (fewer intermediaries and rent seekers)

6. But, it is not (and should never be) the solution for everything

Given what is happening at the moment around the COVID 19 pandemic, Blockchain, crypto and digital assets will prove to be perfect solutions to a number of problems such as: establishing the provenance of medicines; identity verification; managing supply chain logistics; enabling the distribution of assets; computing power for scientific modelling and testing; and providing alternatives to cash.

Next week: Social Distancing in Victorian Melbourne…

 

Sola.io – changing the way renewable energy is financed

Late last year, I had the privilege to be one of the judges for the PitchX competition for start-ups. The overall winner was Sola, a new investment platform to fund solar power using a virtual power plant structure to bring together investors and producers, who might not otherwise have access to the financial and production benefits of this renewable energy resource.

I had the opportunity to catch up with Alan Hunter, Founding Team member of Sola while he was in Melbourne earlier this month. He was busy in the middle of a series of investor meetings and finalising arrangements for their energy retailing licensing.

Prior to Sola, Alan had established a fleet company that leased cars to Uber drivers. Recognising that some immigrants lacked relevant qualifications for advertised jobs, but lacked the finance to buy a car, the business joined the dots and enabled many people with a driver’s license to secure employment. It told him a lot about about helping those less fortunate by building a business designed to remove inequalities and lower barriers to entry.

With that experience, an interest in renewable energy, and a desire to help consumers reduce their power bills Sola was launched. Starting out as CEC-approved Solar Retailer, Sola offers consumers a subscription service to electricity (at a cheaper rate than users pay today).

Sola is now planning to offer the same subscription service with a solar system, for a cheaper monthly payment. It is able to achieve this though the development of an innovative investment and infrastructure platform, that will serve three main types of clients:

1. Home-owners who want to install solar energy, reduce their own power bills, and even generate additional benefits as rebates or credits from feed-in tariffs

2. Retail investors, who may not have access to solar energy (renters, apartment residents, or those in dwellings ill-placed for panels)

3. Wholesale investors and self-managed superannuation funds looking for an alternative fixed income asset

In short, Sola underwrites the cost of panel installation on consumers’ homes. In return, Sola acquires 100% of the energy generated, and the customer subscribes to Sola for their monthly usage. Consumers become subscription members of Sola’s network, via the latter’s retailer license.

For retail investors, Sola will present them with an opportunity to access fractional ownership of a virtual power plant, for as little as $100. These investors then receive a dividend from the energy sales generated by the network.

For wholesale investors, and for a larger stake, they will be part of a closed end capped fund, which will generate a dividend from the energy sales. Sola has an energy off-take entitlement over the panels, and over time, panels which are replaced may still be sold into secondary markets, such as in developing countries, if they have a remaining useful life.

Some of the benefits of this structure include a more equitable arrangement for access to, ownership, and distribution of solar energy assets. It also removes the need for unsecured lending to finance panels and systems which may soon become obsolete. Plus, it enables people who might not have direct access to solar panels to benefit from this asset.

The complex issue of Federal and State rebates came up in our discussion. According to Alan, the former are useful in supporting the roll-out of Sola’s virtual power plant model, and in accessing the carbon credit marketplace via the Small-scale Technology Certificates (STC). Whereas, State rebates are better for end-users, who can engage Sola direct to install their panels, and then join the Sola retail network.

Then there is the issue of inverters, and batteries. It’s generally the former that are rendered obsolete before the panels, but the costs mean that customers tend to end up replacing the whole system. And the latter will not become economic until purchase costs reduce, and feed-in tariffs are phased out.

Finally, Alan wanted to make sure he got this point across – Sola will shortly be launching campaigns in seven locations, to sign-up 180-230 homes, in areas impacted by bush fires. The aim is to give participants a 35-40% saving on their energy bills, as well as establishing the first phase of the virtual power plant network.

Next week: Australia’s Blockchain Roadmap