Taking a page from the SolarCity playbook, the hosted energy efficiency software and services company Noesis Energy has raised a new $30 million fund to help finance the energy efficiency projects of its customers.
The projects Noesis will fund will range from $300,000 to $1 million. Harmon would not disclose the name of the lender behind the debt vehicle, but said that the company would announce its involvement once it had crossed a certain lending threshold. Meanwhile, financing small-scale projects can offer big returns when rolled out across the nation’s service providers, according to Harmon.
Austin-based Noesis, which is backed by Austin Ventures and Black Coral Capital, has itself raised $20.5 million in two rounds of funding since its launch in 2011.
Noesis estimates that in the U.S. commercial and industrial organizations spend over $350 billion on energy each year, but at least $70 billion of that is wasted because of energy inefficient buildings, outdated lighting, and other issues.
It sells software services to the small and medium sized businesses that comprise the bulk of the market for energy efficiency installations and retrofits in commercial, and light industrial properties across the country. The software can project and monitor the dollars businesses would save by implementing a host of energy efficiency measures.
The launch of the company’s new project financing vehicle aims to solve a problem for the vendors that buy Noesis’ software and services.
Put simply, building owners and managers don’t want to pay up front for back-end savings, according to Noesis’ chief executive officer, Scott Harmon. “The overall conversion rate is only 25%,” he said. And the number one reason that a purchase was not made was because of the lack of financing. Harmon said that some of Noesis’ customers believed they could double the success rate from 25% to 50%, with an outside financier.
“We launched the financing last Fall in a testing mode,” said Harmon of the company’s new endeavor. At that point the company was acutely aware of the problem that most energy efficiency project developers face in their market.
Before, customers of energy efficiency project developers were paying up front for the promise of savings, Harmon said. “Now it’s like only having to pay for the power that the solar installation on a roof actually generates,” said Harmon. “A lot of would-be buyers of energy efficiency projects get hesitant. This financing vehicle provides them with the security to only pay for what they save.”
Noesis gets ‘a cut’ of the payments that flow from the customer– the facility owner that pays the utility bills — while installers and service providers get paid 90% of project costs at installation with 10% held back against under-performance risk. The installers also get a 10% upside if the retrofits perform better than expected.
Since Noesis plays the important roles of origination, technical underwriting, aggregation, and measurement and verification it’s a fee-taker. (Exactly analogous to solar selling platforms aggregating PPA).
Harmon says that one big difference between Noesis and SolarCity is that his company works through the local companies that sell the local systems. “SolarCity hires their own sales people,” he adds.
Harmon previously founded and served as chief executive of Motive Inc., which he took public in 2004. However, he stepped down amid an investigation from the Securities and Exchange Commission into allegations of fraud at the company and its eventual delisting from the Nasdaq.
The suits were ultimately cleared as was a review by the SEC and Motive was sold to Alcatel-Lucent. Harmon said Motive’s story was not an in issue in fundraising for Noesis, either with venture investors or its lending partner.
Indeed, Harmon later joined Austin Ventures as a venture partner, after the firm had backed him at Motive. From his position at Austin Ventures he launched Noesis.
“It’s a non-issue,” Rob Day, a partner with Noesis investor Black Coral Capital, noted to us in an email. “We did a deep dive assessment of Scott’s entire career including that experience, and talked directly with people involved in his time there, and came away with zero reservations about backing him.”
“There’s an enormous dislocating market opportunity to build an internet platform for energy service providers,” said Harmon. “The more we looked at it, the more we recognized there’s thousands of people that do this.”
Interestingly enough, Noesis’ success in the market seems to be mirroring an uptick in the number of cleantech or sustainability deals that CrunchBase is tracking. At least 81 companies that CrunchBase defines as cleantech related have raised capital in the first quarter, making it the third best quarter for the category since 2009.