Why Do I Invest in Entrepreneurs attacking the entire energy value chain?

When you strip away the politics and passion, the energy business has a simple purpose: to deliver heat and light to homes and businesses, to deliver force to engine components, and to deliver power to motors and devices. This was true when the energy business meant tallow renderers, whalers, and timber men (except for the power); it’s still true in the age of nuclear power, fracking, and electric cars.Nantucket Whaling Ship

But it’s easy to confuse the relative simplicity of energy’s applications with the growing complexity of its many sources today.  At SURGE we try to keep these facts in mind: electrons don’t care whether they come from the purest sunlight or the dirtiest fossil fuel; nor does force; nor does heat; nor does light.  In a macro investment sense, we don’t think too much about the distinction either.

For the end consumer, the economics, the delivery constraints, the information needs, and the regulatory regime for energy are ultimately the same.  SURGE’s distinct advantage, sitting in Houston, at the heart of the world energy business, is that we capitalize on our understanding and relationships across all aspects of the energy value chain, stretching across the traditional and the clean sides of the business.

We understand that a massive, century-long, global investment legacy in traditional energy infrastructure creates enormous opportunities for nimble new companies to make it cheaper, cleaner, and faster to deliver traditional energy sources.

But we also understand that the evolution of clean energy production and delivery—driven by technical, regulatory, and consumer trends—creates completely new avenues for ambitious startups to grow.

The world’s population is projected to be nine billion by 2050— and most of that growth will come in rapidly developing, historically poor countries that demand all of the goods of modern industrial economies.  Barring fundamental scientific breakthroughs, this new population will create enormous demand for energy, which will be delivered in the most economical way—likely through the development and deployment of traditional energy sources.  Ignoring this truth means ignoring a significant investment opportunity over the next forty years.

Clean energy will also be part of the answer; we know this better than most:

  • Texas is the national leader in wind energy production by more than a 2x margin over the next leading state.  As the nation’s refining hub, Texas is also a center for alternative fuel blending, and has significant alternative fuel production capacity.  The pool of expertise related to large-scale clean energy production and delivery, from project finance to operations, is deeper in Houston than arguably anywhere else in the world.
  • Alone among the states, most of the Texas (the 11th largest eletricity market in the world) power grid is unregulated by the Federal government, and most of it is deregulated with respect to power generation and retail delivery.  This creates the potential for rapid experimentation with new programs and technologies in demand response and energy efficiency, especially as power supply struggles to keep pace with growing demand.  With over five million smart meters deployed across the state, the infrastructure already exists for new entrants to test ideas in the market without first jumping over various utility, state, and Federal hurdles.
  • Perhaps most important, Houston’s massive, young, diverse population demands the same green products as its counterparts across the country.  From green buildings to electric cars, Houston ranks among the top cities in the country with respect to energy-efficient products. And the city of Houston is the largest purchaser of green energy in the country. (Tesla Motors is opening a service center to complement its showroom in Houston: it’s a good bet that oil men are driving electric cars too.)Our Electric Car at the SURGE HQ

As investors, we follow demand, and we see opportunities in both clean and traditional energy.  Not only do we nurture both types of energy entrepreneurs, we actively cultivate bridges between them, so that our companies  are exposed to the range of similarities across the SURGE cohort, regardless of industry focus.

We think this is one of the most unique ways in which we create value for our companies.  We think we are better situated than anyone in the world to do this.  As we welcome our newest class of entrepreneurs from across the energy spectrum, we think our approach is working out pretty well so far.

Amitav Misra is an investor in and mentor at SURGE.  He is President of Taxa, a Houston-based design and manufacturing company (www.crickettrailer.com), and previously spent over a decade in both traditional and clean energy industries.

 

 

Written by kirkcoburn

Founder & Managing Director @SURGEVentures, Founder @SiriusXMPGATOUR, Founder @ChiefOutsiders, @LTRaceSeries Buckle Holder, Blessed Husband & Father

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