When Constellation Energy Group decided to back Astrum Solar in 2011, it was a huge boon for the Baltimore energy startup.
Astrum was founded in 2008 on the idea of bringing residential solar energy to the East Coast, where the technology had been slower to catch on compared with California and its neighbors.
But while solar’s nascent growth in the Mid-Atlantic was a big business opportunity for the Baltimore startup, it also posed a challenge: How to persuade homeowners to invest in a technology they didn’t know much about from a company they had never heard of.
Constellation, now part of Exelon Corp., invested $3 million — the first funding that didn’t come from Astrum’s founders’ and their family members — and agreed to work with the startup to develop a residential solar leasing plan for Constellation customers.
The investment was one of 20 made by Exelon’s venture capital fund, as the parent of Baltimore Gas and Electric Co. strives to keep tabs on the rapidly evolving utilities industry. Since launching in 2010, Constellation Technology Ventures has invested in companies that are developing technologies with potential to ruin or reinvent the way traditional energy companies do business.
Through the venture fund, Exelon has invested in advanced wind turbines, thermal energy imaging, electric buses and charging stations for electric cars. While looking for potentially profitable ventures, fund managers also look for technology the company wants to know more about or that could complement Exelon’s existing services.
“We just feel like if we’re investing now, we’re creating options on future outcomes,” said Michael D. Smith, vice president of Exelon Generation Innovation and Strategy Development, which oversees Constellation’s venture program. “When the world changes, at least we’re prepared — as prepared as we possibly can be.”
Smith declined to discuss financial details of the fund but said it typically invests at least $1 million in each company.
Many corporations use venture funds or business incubators as a form of research and development, rather than waiting for the next big idea to sneak up on them, said Tom Ciccolella, PricewaterhouseCoopers’ U.S. venture capital leader.
“I don’t think there’s any company that’s not thinking about innovation and disruption,” Ciccolella said.
Corporate venture investing has been on the rise in recent years, tripling from $2.4 billion in 2011 to $7.6 billion in 2015, according to the MoneyTree Report, which is prepared by PricewaterhouseCoopers and the National Venture Capital Association, based on data provided by Thomson Reuters.
Google, Verizon, GE and Johnson & Johnson all have venture capital arms.
On occasion, Exelon has tapped its portfolio companies to introduce new services. The residential solar leasing program developed with Astrum was Constellation’s first foray into residential solar. Exelon bought Constellation in 2012.
Astrum was acquired in 2014 for $54 million by Direct Energy but not before Constellation and Exelon gleaned from the startup how to make solar panels more appealing and affordable for homeowners.
Constellation’s backing made Astrum more attractive to other investors, said Josh Goldberg, one of Astrum’s co-founders.
“It was really important in a new industry,” Goldberg said. “If Exelon thinks this space has potential and this company in particular has potential, it’s validation.”
Constellation has since expanded its residential solar business to New Jersey, New York and Massachusetts.
“They knew residential solar would either be a huge threat or a huge business opportunity,” said Goldberg, Astrum’s co-founder. “And they figured that out early.”
Constellation Technology Ventures doesn’t make acquisitions, and it supported Astrum’s sale to Direct Energy.
More recently, the venture fund has invested in Powerhouse Dynamics, which developed a virtual platform for managing energy use across multiple locations. The program is available to Constellation’s business customers, such as a restaurant chain.
Other recent investments include ChargePoint, which makes electric vehicle charging stations, and Proterra, whose electric buses are designed to replace aging public bus fleets.
Newcomers like these are “reshaping the way things are done,” said Constellation CEO Joseph Nigro. “We need to stay on top of that.”
Venture deals with corporations might become more attractive, as venture capital investing in clean technology, or innovation intended to reduce waste, has declined in recent years. Such investing peaked at $4.2 billion on 299 deals in 2008, according to the MoneyTree Report. Investors spent just $1.4 billion on 157 deals in 2015.
“What people have learned as a result of investing in clean energy is that it takes time and it takes a lot of money,” Ciccolella said. “Those things are not always the venture model.”
Venture capitalists often prefer deals that either succeed or fail fast, so their money isn’t tied up for too long, he said.
Those that do invest in energy startups often prefer to wait until the companies are further along because they consider early-stage startups too risky, said Eric D. Wachsman, the director of the University of Maryland Energy Research Center in College Park.
Corporate venture funds like Exelon’s, which has a vested interest in backing early-stage energy startups, help fill the void, but Wachsman said he worries that funding woes could dissuade entrepreneurs from pursuing energy projects. He’s hopeful venture firms will come around again to energy.
“When that’s going to change, I don’t know. I hope it does,” he said. “I don’t think there’s much doubt the world needs it.”
Source: Through venture fund, Exelon gets intel while startups get funding
