MAYNARD, Mass. – In the shadow of Silicon Valley, the lights flicker on and off, as a debt crisis looms large for California’s biggest utilities, and state regulators are battling consumer activists daily.
Venture investors, too, are treading lightly through the sector. While the venture market hit an all-time high in 2000, with $103 billion raised in total by private companies, only $142.69 million reached the utility sector, according to Venture Capital Journal publisher Venture Economics. Seven young energy-related companies raised venture dollars in 2000 – mostly from utility industry players and a few industry-specific funds.
Inefficiencies in the often-chaotic deregulated energy marketplace, however, recently spelled opportunity for at least one industry player: Enermetrix of Maynard, Mass.
“California is unique, but the supply-demand question is very real,” said Enermetrix co-founder, chairman and chief executive John Gaus.
Late in January, the company, which operates an online energy exchange for commercial and industrial buyers in deregulated markets, closed a $35.5 million series D round of private equity financing. The company also provides software solutions to analyze market structure and behavior and to automate business processes.
After six months of shopping the deal with a target set between $30 million and $40 million, California’s energy crisis hit the headlines, prompting investors’ interest and securing a healthy valuation for the company’s stock. Cinergy Ventures, the venture arm of Cincinnati-based utilities provider Cinergy Corp., led the offering. Cinergy, which already has a commercial relationship with Enermetrix, took home almost half the deal. Alliant Energy Industrial Services, a diversified utility provider of Madison, Wis., and Bank of America of Charlotte, N.C. also joined the company’s existing backers in its most recent round of funding.
Alliant not only secured an equity stake in Enermetrix but will also use the company’s online network to drive its retail business into deregulated energy markets. Although Alliant’s retail operations currently are concentrated in the regulated markets of Iowa, Illinois, Minnesota and Wisconsin, it will leverage Enermetrix’s platform to move into Boston, Philadelphia and other Northeastern markets.
“We’re positioning for our customers’ needs as the market continues to evolve, and expanding with additional e-commerce building platforms,” said Greg Genin, general manager of Alliant’s Energy Management Services. “Enermetrix’s management team is top-notch, with a deep understanding of both the industry and technology. Their platform is proven and operational.”
Not only is the company now capitalized with enough fuel to take it to profitability, but the most recent round of venture financing added a number of strategic players that promise to expand its footprint and extend its model across the industry, Gaus said. Following the news of its funding, the company also announced a joint marketing initiative with Accenture (formerly Andersen Consulting) to deliver e-business solutions to the consultants’ clients moving into competitive energy markets.
“In this round of funding we’ve established a wide range of strategic partners: well-established companies with footprints, niche technology players in the energy industry, e-business companies,” Gaus said.
Founded in 1996 by Gaus and Clarkson University fraternity brother Jeff deWees, the company – under the moniker North American Power Brokers – lowered the cost of utilities for its roster of commercial and industrial clients by aggregating their purchasing power. By 1997, the purchasing agent had moved online and was fielding as many requests for use of its software and technology as it was for online trading accounts. After rethinking its strategy, North American Power Brokers reemerged as Enermetrix in August 1999, shortly after securing its first two rounds of venture financing.
DQE Inc. subsidiary Duquesne Enterprises seeded the company with a $1 million round of private equity financing in January 1998. DQE is a power generator based in Coraopolis, Pa. Enermetrix raised an additional $4 million later that year from Duquesne as well as Hampton, N.H. electric and gas company Unitil Corp. and other small utilities.
When the company closed its series C financing in December 1999, it added traditional VCs to its list of backers for the first time. Insight Capital Partners and GE Capital were both new investors in the $20 million deal and took seats on the company’s board of directors. Enermetrix and GE Power Systems also secured a strategic relationship to bring technology and services to deregulating markets around the world.
All of the company’s existing backers participated in the latest round of financing.
Although Enermetrix’s most recent round of financing is expected to be its last before it hits the public markets, there is no word on when the offering might come. Meanwhile, the company plans to use the capital to drive product development, to subsidize a product launch and to market its solutions aggressively.
“The customer is in the driver’s seat with this,” said Alliant’s Genin. “It allows them to reduce exposure to market volatility by locking into a longer-term market contract. It brings some assuredness back into the pricing and allows customers to shop for a price and terms and conditions that meet their individual needs.”
If Enermetrix can deliver on its promises to reduce the cost of energy for large-scale consumers – and lower the cost of those transactions while mitigating risk for energy providers in deregulated markets – it may be the type of proposition venture investors can no longer ignore.