Top Deal: An Energy Management System to Save Money and the Environment

Key Stats:

Summary

To date and as of 2/26/2019, Sapient has raised $169,023

The Sapient team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Problem

Office buildings consume a significant amount of energy: office with 100,000 square feet or more often consume an average of 20 kilowatt-hours (kWh) of energy per square foot, annually. This energy consumption represents up to 19% of total expenditures for a typical office building, which is a significant portion of office related cost. While traditionally, the most significant source of energy expenditure goes toward Heating, Ventilation, and Air Conditioning (HVAC) and lighting, companies are increasingly capable of reducing these costs.

Plug load ‘aka’ energy consumer by outlets we all plug our cell phones and computers into are a different story. Projected to represent over 45% of total building energy draw within ten years, plug load is an increasingly significant issue for companies hoping to control fixed building costs.

Even more, controlling plug load consumption is more challenging than controlling HVAC and lighting costs. Unlike HVAC and lighting, plug load is decentralized (‘aka’ every individual plugging into an outlet is making their own decision, rather than making one decision to lower the thermostat during winter). Thus, energy waste is dispersed among each and every outlet in a building.

Plug load is also notable for its significant potential for energy waste. Even when switched off, electrical appliances will remain on standby mode, consuming energy regardless of use. Household desktop computers and multi-function printers, for example, have annual phantom load costs of around $6.31 and $4.73, respectively.

Realistically, offices have hundreds of desktop computers and tens of printers, which are often more sophisticated and energy-demanding than household electronics, resulting in hefty, yet avoidable phantom load costs.

These costs can significantly detract from the value of electrical appliances that are used sparingly in an office setting, or appliances that go unused when employees are not in the office, like scanners, dishwashers, or microwaves.

Without a centralized management system of the thousands of outlets in an office, companies may find it very difficult to understand and control their plug load costs.

Solution

Sapient is a plug load management system that helps to control and minimize these plug load costs. The company provides smart outlets connected to their machine learning web application that meters each individual smart outlet’s plug load at any given time.

By collecting each electrical appliances energy consumption history, Sapient’s system enables companies to understand which machines are inefficiently placed or underutilized. Sapient organizes outlet plug load history by individual device types, rooms, floors, departments, and specific time intervals, helping establish company-specific benchmarks for electric device utilization and easing the process by which companies learn more about their energy usage.

Sapient’s platform features a machine learning enabled algorithm that analyses patterns in energy usage between the aforementioned metrics and is capable of generating rules for minimizing energy waste. For example, if a company’s HR department generally leaves the office at around 6 PM daily, Sapient may lower power delivery to HR’s printers and computers, or if the office building’s employees are generally out of the office by 10 PM, Sapient may cut off power to certain devices, like microwaves or scanners to help reduce phantom load wastage.

Summary

Sapient’s smart outlets are quick and easy to self-install. When a company wants to use Sapient’s plug load management system, all they have to do is input their building/order information on Sapient’s website, and wait for outlets to be shipped.

To install outlets, companies only have to scan the back of an outlet/power strip into Sapient’s website, then plug in their devices. Sapient’s product is also inexpensive, costing just $0.35 per square feet, annually, with a one-time setup fee of $0.35 per square feet.

Performance

The company is still very young, with less than 5 months of sales history, but it has already attracted a significant amount of interest from interested clients. Sapient already has contracts for 875K square feet of office space scheduled for installation by mid-2019, generating about $425K in revenue and $290K in annual recurring revenue. Their sales pipeline is also very promising, with 8M square feet of office space scheduled for deployment in 2019 representing $2.5MM in annual recurring revenue.

Why We Like it

1. Early Product-Market Fit

Sapient has an intriguing product-market fit. Their business model, which does not require large upfront purchases, allows for companies to spread out their investment in Sapient’s energy management system over time, so client companies can see their operations expense fall, without an inhibitive initial investment into Sapient’s system. Their services are therefore more accessible to smaller companies that might not have a significant amount of cash on hand, but also may seem more attractive, seeing as clients will not need to wait a significant amount of time before seeing a return on their investment.

Sapient’s product also synergizes well with its recurring revenue model. The advantages of a continuous source of income for a company are fairly straightforward – the company does not need to continuously drive new sales to retain existing revenue. The company’s recurring revenue from their current B2B services can also help fund their plans to roll out B2C focused products and capitalize on a brand new market opportunity.

While other companies that use the recurring revenue model may be threatened by shifting consumer demands, Sapient’s product directly provides their client companies value in the form of cost savings. For example, a Netflix subscriber may choose to discontinue their subscription if other entertainment options become more relevant to users. A reduction in operational expenses, however, is resilient to shifts in consumer demand, seeing as client company’s investment in Sapient’s energy management system will never necessarily harm a client, but rather free up capital for investments in other facets of their respective businesses.

So, their business model is not only effective at acquiring customers, but also for growing their own business, to their significant advantage.

2. Significant Market Opportunity

Their clear target market, office buildings, is also a promising market segment. With over 16 billion square feet of office space in the U.S. alone, just 5% of Sapient’s total addressable market is $6.5Bn. As the US economy continues to grow, the market opportunity for plug load management can only be expected to grow.

Most importantly, however, Sapient’s product is highly likely to be accepted by the market. Current plug load management systems are smaller scale than Sapient, which specializes in serving larger office spaces that not only require different, more sophisticated management systems than a B2C system but also has more incentive to introduce cost-saving measures. So, Sapient is targeting a market segment with an unmet demand, with a valuable product and a well-designed business model.

3. Well-established Competitive Moat

Sapient has a number of competitive moats that help protect their first mover advantage. The company holds patents on each of the technologies involved with creating the Sapient platform, which mitigates the possibility of similar products reaching the market. Competing companies will need to find an alternative – and superior – methods of minimizing phantom load wastage, which considering the Sapient’s cost-effectiveness and ease of use, may be considerably difficult.

The following companies represent competitors in the plug load management space, specifically tailoring their services to minimizing the energy cost for individual energy-consuming devices.

The company’s most important competitive advantage is clearly their machine learning algorithm, which has been successful at reconciling power usage data to infer human behavior to automatically generate energy-saving rules.

Alternative plug load management companies like Sense, do not target large-scale implementation in commercial buildings, and other companies with the same target market are less flexible, focusing more on turning devices off over the weekends, or other times when an office might be less occupied.

Not only does Sapient’s algorithm achieve the same effect, but it also enables commercial buildings to manage individual devices independently of one another, and automates the process of analyzing historical energy output data, which household-targeting energy management systems fail to adequately achieve.

There are, of course, competitors that are focused on managing HVAC and lighting energy costs like Honeywell, Siemens, and Johnson Controls that could potentially move into the plug load management space.

However, this is an unlikely scenario for a number of reasons. First of all, these larger companies are currently more focused on HVAC and lighting management because as a percentage of overall energy costs, HVAC and lighting are more significant, and therefore more profitable.

As plug load increases in proportion to other costs, however, Sapient’s specialization in plug load management on the commercial scale makes the company an attractive acquisition target. Integrating Sapient’s management system into their current product offerings is likely to be more cost-effective than developing their own plug load management system from scratch.

Summary

At the end of the day, the dramatic increase in electronic devices used both in households and in the office is set to continue for the conceivable future. Put simply, think about the number of individuals you see on a daily basis at airports, offices, lunchrooms, coffee shops and conference rooms alike plugging in to juice up their phones, tablets, laptops and more.

With the number of electronic devices growing per individual yearly, the need for outlets that can charge us back up ‘aka’ plug load management will only become more important with time.

By providing a service that is cost effective and easy to implement, Sapient has developed a high-value product for this large, growing market, with competitive advantages that may prevent new entrants into their market.

The success that Sapient has seen so far, with its $425K in revenue, helps demonstrate the high degree of interest offices nationwide have in adopting their product. Similarly, their recurring revenue model will help generate the company the necessary cash-flow to drive their plans for product diversification and expansion into a different market.

Yet, while Sapient’s current product is very promising and has a significant market to capitalize on, the most promising feature of investment into Sapient is the potential for significant returns.

As a first mover in the B2B plug load management industry, if Sapient is able to grow their business rapidly, as they have so far, they will have time to continue growing their competitive moat and penetrate other similar markets.

These features in mind, Sapient is likely to far surpass their current $9MM valuation and therefore is a Top Deal.