Easenergy Investments Balance Financial, Non-Financial Goals - Case Study
Energy entrepreneurs need more than money and general management advice from their investors. A few venture investors offer valuable expertise and resources to their portfolio companies. As the corporate venture arm of Groupe Electricité de France (EDF), Easenergy has access to a wealth of technical expertise, partners and markets. The venture has found a creative "sweat-equity" method of leveraging these resources for their portfolio companies.
November 22, 2004
Easenergy was founded in 2000 to be a new kind of investor. Instead of capital, Easenergy invests human resources in each portfolio company. Far from a cushy board position, these people take a hands-on technical role. Each company chooses a candidate from the vast research and development staff of Groupe Electricité de France, most often an engineer with skills directly related to the portfolio company's technology, who will be dedicated to the company on site. In compensation, EDF receives equity in the company.
Case study: EnLink Geoenergy
Easenergy evaluated EnLink in 2002, determined the company's needs and matched them with selected EDF experts. EnLink chose two candidates, and EDF relocated them both with their families to the US for a one-year renewable engagement. Now Easenergy is helping EnLink expand into Europe.
"These talented EDF individuals have been valuable to our growth and business development," says George Head, President and CEO of EnLink. "They brought immediate, applicable technical and marketing skills to our enterprise and an understanding of the opportunities in France and throughout the European Union."
EnLink's EDF advantages
"We have more diversified resources than a typical corporate venture, even other utilities, because of the diversity of EDF's core businesses," says Matt Lecar, VP of Projects for Easenergy. Indeed, EDF is the world's largest utility, with 47 million customers in 24 countries in Europe and South America, as well as energy and industrial service affiliates.
Easenergy is in a position to support EnLink sales and marketing efforts through EDF's subsidiary utilities and Dalkia, a Europe-wide facilities maintenance company in which EDF owns a stake. A global sales force is just part of the picture.
"EDF has a 2500-person research and development organization, which puts it on par with the National Laboratories or Electric Power Research Institute in the US," says Lecar. Through EDF, EnLink has access to engineers who have helped develop advanced GHP drilling, looping and installation processes.
"EnLink specializes in large-loop GHP systems," Lecar explains, "and geothermal needs terrain." Eligible buildings, such as schools and hospitals, are often government-owned. EDF's global organization has relationships with municipal governments, which will facilitate connections between EnLink and decision makers.
"EDF’s reputation is beneficial to EnLink," says EnLink's George Head, "both in our pursuit of U.S. customers and our prospects of entering the French and EU markets."
"No one else is doing what Easenergy is doing," says Lecar. "The industry has not yet seen stellar exits with high returns, and it's difficult for a utility corporate venture to maintain internal support for an investment activity based on financial returns alone."
Venture investing has its risks, as some utilities have learned. Financial disappointments do not endear a utility to its shareholders.
"When utilities participate in those investments, their shareholders are assuming more risk than normally found in the regulated business," wrote Ken Silverstein, a noted industry analyst. "And if investors truly wanted to speculate, they might not want to mix those investments with their utility investments."
The key for Easenergy seems to be their balance between seeking financial returns and mutual non-financial benefits. Through Easenergy, EDF has early access to new technologies and gets a head start on their competition. While no other utility corporate venture offers quite the resources of EDF, the Easenergy model is one that could be replicated.
"Our growth and return requirements are not limited to the financial return like other corporate ventures," Lecar notes. "Even though EDF expects Easenergy to cover its operating costs in the long run, the strategic benefits are the driving force behind Easenergy activities. With deregulation coming, EDF views Easenergy as an antenna to maintain a look out for new ways to bring competitive services to its customers."
On the fast track
The model is working both for EDF and its portfolio companies, like EnLink, who gain an additional strategic benefit: a fast track to understanding the needs of its customers. Embedding that understanding in the management team will help the company overcome inherent barriers, such as long sales cycles, that they are sure to face.
"For a start-up company such as EnLink to access the resources of an enterprise the size of EDF requires experience and contacts developed over years of gaining respect within that organization," says Head. "The Easenergy team in California provides that valuable link to EDF in Paris. They're essential to making the relationship work."