The way we value energy start-ups will dramatically change in the very near future since there are a host of new ways economic energy disruption can impact capital expenditures (capex) and therefore valuation. One necessary area for meeting corporate needs is connecting with consumers like never before to deliver data and savings. This is something that has driven the recent IPO of OPOWER (UNKNOWN:OPWR.DL) to reach over 32 million households already.
Other important new areas of business include sustainability, the social cost of carbon, social media communications, political lobbying, crisis management, meteorology, finance compliance and cybersecurity of critical energy infrastructure. Security in particular is something young energy start-ups and established power players like American Electric Power (NYSE:AEP) and PSEG (NYSE:PEG) feel could become a bigger topic thanks to increased spending to secure the evolving smart grid from hackers.
Also, with global warming and carbon emissions more prominent than ever in the media, a seismic shift in allocations of capex is likely, dramatically altering the valuation these companies fetch from investors or potential acquirers. That could bode well for young start-ups such as AltaRock Energy, Cool Planet, NuScale Power, LightSail Energy, Ambri, QBotix and others who are focused on solving issues related to geothermal, nuclear, offshore wind, solar, fuel cells, and battery storage solutions.
Conversations I've had with several funds point to new opportunities to fund start-ups advancing energy solutions that can sustain power disruptions from adverse weather conditions and lead to more efficient energy distribution with lower carbon emissions vs. fossil fuels. That could bode well for young start-ups.
There are always plenty of companies that will promise to save the world with better solutions. Yet with more and more stringent regulations on carbon emissions on the horizon, it could be much harder for energy start-ups to secure capital to commercialize their products, especially since investors may want more ownership stakes for their financial risk.
That makes the role of people at a company even more important. Companies are only as good as their employees. Therefore another economic disruption for energy companies will be the extra money needed to pay, train, and retain more talented workers in a new energy world.
There is too much happening in social media for today's energy start-ups not to pay attention to their external communications presence, including crisis management pre/post natural disasters. So while energy start-ups are focusing on their technology, now they must have people in place to establish and maintain a communications presence in local communities and on platforms such as Twitter, Facebook, and Tumblr.
This new socially connected energy world will require more money to reach more consumers and that will affect much needed capex for many start-ups. It will also likely keep investors interested in OPOWER, a company whose early success may have helped influence Apple to enter home energy management, a point also validated by Google's acquisition of Nest for $3.2 billion.
Finally, today's energy start-ups also face opposition from those investors against investing in fossil fuels. With that said, I believe the real energy investment alpha for investors will come from Big Tech, not Big Oil. This suggests there will be new fascinating possibilities within energy that were not even considered five years ago.