Many of my investment thesis' this past year and research has been focused on the newest technology trends that are transforming the built environment. From Robotics, to Artificial Intelligence to Lithium battery technology and of course the IoT landscape. But the most vital path to a renewable energy future requires much more than just technology to do the heavy lifting. This past summer I was introduced to the other two vital components that will accelerate this shift: (i) data science driven business models focused on acquiring customers suited for energy efficiency and (ii) innovative financing, most notably PACE (Property Assessed Clean Energy) that allows for capital intensive energy projects to be affordably financed and capitalized.
As you can imagine, California is the market leader and largest liquid market for this type of business model and financial innovation with nearly $3B funded since 2011. One of the fastest growing companies in this space is Berkeley, CA based PACE Avenue, led by energy industry veteran (and real veteran) Micah Myers a former Navy pilot turned Stanford MBA who cut his teeth in the VC world after business school.
Micah and I were introduced by Val Miftakov, the founder of EMotor Werks whose EV/Smart Grid company I have had the pleasure to advise throughout 2017 in the lead up to their acquisition from Enel in October. Micah was an early investor and board member of EMotor Werks and someone whose vision for the future of energy efficiency and how technology will facilitate this shift has been an insightful resource for Impala Ventures as we have been navigating the world of PACE as an investment class.
I recently sat down with Micah in Los Angeles at Neuehouse in West Hollywood, where we discussed the future of the industry and how PACE Avenue is poised for growth into 2018:
Tell me the genesis story of your company?
I've had the entrepreneurial bug my whole life, even though it has taken this long to answer the calling. The questions have always been “when” and “what” more so than “if” I would start a business. It only took four years of college, 12 years of active duty service as a Marine, two years of business school, and seven years of venture capital and executive management before the right time came. The opportunity has to align with timing. The impetus for me originated in conjunction with a corporate event at the prior company offering some modest liquidity and a nearly simultaneous federal statute update opening a massive new opportunity in home improvement financing. My expertise aligned well with the opportunity, and I started Pace Avenue the day after leaving my prior firm.
How does this all fit into your educational and professional background?
I grew up curious. To my parents’ dismay, I always dismantled my toys - and unfortunately some of their things, too – so I could understand what made them tick. Problem solving and a fondness for math eventually complimented the curiosity. I enrolled at U.C. Davis and when a math degree seemed too philosophical and engineering sounded like a trade school, Physics became the logical choice. The fact that Physics undergrad degrees aren’t the most marketable didn’t bother me. Having grown up near a Navy air base, I’d already decided, sometime in junior high, that I’d be a fighter pilot after college. After graduating I turned the dream into reality and joined the Marines. With a little luck and a lot of hard work, I landed the best, and one of the most exclusive, jobs in the world, flying F/A-18s in combat from aircraft carriers, as a Marine.
After twelve years of amazing experiences in active duty, the calling to make my impact on the world grew stronger, and I left to study business at Stanford. Playing catch up, I soaked up everything I could about corporate finance and investing to make up for the prior 12 years of focus on radar theory and missile kinematics. The extensive time I spent in various Middle East combat zones had molded a passion for renewable and alternative energy technologies and the positive impact they could have on U.S. energy security. (This was before the shale gas boom.) I combined these interests after business school and initially researched renewable energy investment opportunities as an analyst for Passport Capital, a $3B long, short hedge fund. This was during the calamitous second half of 2008, and after a short stint there, I left to join Claremont Creek Ventures to focus on earlier stage businesses in renewable energy. I eventually led a seed investment in a company, which at the time was called Clean Power Finance (CPF), now Spruce Finance, a B2B2C company that provides financing for solar and energy efficiency retrofits. After leading a full Series A round and helping recruit new management, I joined CPF’s executive team and spent the next five years leading product and business development, and eventually sales and marketing, as well.
How do you effectively communicate your vision, strategy and mission of the company?
Our world is transitioning its energy supply and we can’t do it quickly enough. So our mission at Pace Avenue is to accelerate this transition in the U.S. We intend to help 10M U.S. homeowners save enough energy every year to power 15M electric vehicles. This could cut almost 10% of U.S. oil import demand. We achieve our mission by helping home owners upgrade their homes intelligently and affordably with 1) a curated selection of energy efficient and renewable energy technologies and 2) smart financing choices. We are a broker of energy impactful home improvements and financing. We believe that when advised properly, homeowners can simultaneously improve the comfort and value of their homes, save money, and make positive contributions to U.S. energy security and to the environment. Our business model is a win-win-win.
Share with us some your most critical experiences starting out, raising capital and recruiting for your venture?
New ventures ALWAYS prove to be more difficult than entrepreneurs estimate. Pessimists don’t start companies. Whether closing the first account, raising the first money, or managing through the first unanticipated team dynamic, challenges will come. It takes both a passion to win and the humility to change in order to succeed.
For Pace Avenue our challenge actually came in the form of success too early. We collect and analyze data on everything we do, and early on we had a chart-breaking, record sales month with better than expected conversion metrics across the board. Because it happened early, we didn’t recognize that the phenomenal performance had been an outlier, and extrapolation of the positive trend led us to accelerate investment and attempt to grow too fast too early. After a couple months, we had to recalibrate and slow down. Slowing down in a start-up while maintaining morale and culture is one of the hardest things to do. The lesson learned is to be wary of steep or shallow trend lines in the beginning. Likely, you will need more data and experience than you think before the real trends emerge.
What are some of the technology advances and changes you envision in the next 5,10 and 20 years in your space?
Home improvement. Homes are becoming more connected. Our large devices that consume disproportionate amounts of energy, like electric vehicle chargers, HVAC units and cleaning appliances all will need to respond automatically to signals from our energy infrastructure so demand can match supply. More energy storage will find its way to the distribution edge of the electric grid. Building materials are becoming more sustainable and more energy impactful. Consumers need to opt-in one purchase at a time for the successful proliferation of these technologies, because even great products, unless they have some form of inherent increasing demand side benefit, need to be promoted and sold. This is why we curate the best products and provide tailored, bundled solutions to our customers.
Financial innovations. Large capital expenditures like home improvements also require long-term, low-cost financing solutions to scale rapidly. Distributed solar grew from zero to become a multi-billion dollar market in less than 10 years, starting out initially during the worst recession in history. The long-term financing innovations sparked and fuel this growth. Energy efficient home improvements need similar financing solutions to scale.
A recent and innovative financing solution relevant to home improvement is called Property Assessed Clean Energy (PACE). PACE allows a municipality to offer its residents low-cost, long term financing for eligible improvements that create a public benefit, like improvements that reduce the energy and resource footprint of a building. PACE financing is repaid through property tax collection and can remain assessed to the property when the property is sold. Although it’s only active in a few states, PACE has the potential to become a mainstream public-private financing mechanism across the country (current administration notwithstanding.)
What are some of the ethical questions you think about as Ai, big data collection and robotics will have on our privacy?
Innovations in data and analysis are providing huge value to consumers. We want providers to know what goods and services we want, when we want them, when we don’t, how and where we want to be told about them. We want easy, accurate and cheap. If businesses can get it right on ALL the above AND provide Fort Knox level data security, most consumers will view the privacy and value tradeoff positively. In all cases a high level of data security is table stakes for all businesses these days.
What are the characteristics you look for in talent that you recruit into your company?
This is an easy answer. We look for cultural fit. Do you have a passion for what we do? Does your experience demonstrate a track record of competitive engagement? Are you a team player? Do you have commitment to a cause? Can you establish trust with our customers, partners and teammates? If so we want to talk to you.
What are your most rewarding moments as a founder?
Happy employees make happy customers and happy customers make happy employees happier. The most rewarding moments I see as a founder come when our customers give positive reviews of our team members and of our business. Better yet, I love seeing photos of our sales team in the field meeting with our customers delivering value.
What causes you the most stress and how do you manage these episodes?
We’ve only raised a small amount of seed capital and have mostly a bootstrapped the business. So number 1, 2 and 3 are cash, cash, and cash. I think venture-backed start-ups, while they claim to be focused on cash, fundamentally believe that their investors will be there to backstop a budget crisis. Usually, they are absolutely right, even though the resulting terms may seem “unfair.” A bootstrapped business, on the other hand, knows cash-out is a one way door. You don’t recover from that. Sometimes that requires hard choices but always in the context of preventing worse outcomes.
What big things are in store next for you and the company?
We are profitable. We have learned volumes from our mistakes. We are ready to scale. 2018 will be a break out year for Pace Avenue as we chart a path toward 10X annual growth. By the end of 2018, Pace Avenue will have a $15M run rate in transactions, will earn greater than 50% contribution margins, and launch and grow a recurring revenue product to at least $1M topline.