Verda Ventures is proud to announce its investment in Entheos, a category-defining battery storage workflow system and marketplace. Using Verda’s framework for markets, industries, and teams, below is our analysis of the investment opportunity and potential impact. The article is broken up into five sections: market (macro and micro), industry (macro and micro), team, impact, and risks. The analysis below has been limited to publicly available information to protect Entheos’ business interests, thus financials and other key data have been purposefully omitted.
Macro-Market
In order to have both renewable and reliable energy, battery storage must be deployed at scale.
The number of GWh required in batteries is estimated to increase from 700 GWh in 2022 to around 4.7 TWh by 2030 across all applications with 350 GWh for stationary storage (Source). Battery energy storage systems (BESS) alone are predicted to have a CAGR of 30% through 2030 reaching over 700 GWh (Source). By contrast, at the end of 2021, the global installed energy storage capacity measured just 46 GWh, which indicates that about 1.5% of the world’s renewable energy production is backed by storage today (Source).
We furthermore see large regulatory and policy tailwinds to these current estimates. For example, the EU passed legislation that incentivizes energy storage deployment (source) and the US recently passed the Inflation Reduction Act back in August 2022, provisioning a 30% investment tax credit for stand-alone or co-located storage, and drove large amounts of funds to wind, solar and storage tax credits. Geopolitical instability, such as Russia’s invasion of Ukraine, has created further incentives to accelerate efforts towards sustainable energy and second-life/recycled cells in battery packs.
Single-cell control enables more circular and robust supply chains. Most of the electrification supply chain exists in Asia. If the US and Europe want supply chain domestication and diversification (stated policy goal) AND more sustainable production processes, we need a change. Just as technology (fracking) reduced dependency on foreign oil, so too does technology (Smart Battery Management Systems) reduce dependency on foreign batteries.
Micro-Market
Battery supply chains are commoditizing with downward pressure on profits, especially for original equipment manufacturers (OEMs) of cells, modules, systems, etc. Entheos, however, is positioned to take advantage of where value is likely to accrue: (1) technology that enables productivity growth with the same old cells/modules/chemistries and (2) the nexus of data. Entheos has BMS/EMS that enables anyone to remotely control battery resources at the most granular level on Earth. This data set does not exist. For businesses, there is an explicit benefit of lower energy costs & higher battery efficiency by using Entheos’s RebelCore software-directed batteries. By using “smart-cell” RebelCore software-embedded batteries, Entheos customers can achieve 50% less loss, 50% lower cost, and up to double the battery lifespan compared to existing solutions through higher efficiency cell usage, extended useful life, and inverterless AC/DC conversion. Through energy Storage as a Service (eSaaS), Entheos enables customers, whether independent power producers or businesses, to access the benefits of battery storage without the upfront capital investment.
Entheos delivers energy storage-as-a-Service and attractive unit economics in a turnkey solution without asset ownership burdens for commercial customers who have high energy needs and independent power producers. Thus, in the immediate term, Entheos provides customers with significant cost savings while retaining healthy gross profit margins. In a future state, the team will leverage a fully self-sufficient marketplace that will connect customers to energy storage without the burden of ownership.
Currently, nobody has successfully financialized distributed battery assets at scale. Through financialization, mega-scale projects with contractual offtake can get funded with a risk profile similar to real estate. However, to achieve ambitious climate goals, we first need a financial engine for the financing of smaller, more dynamic resources. Through better unit economics (better assets) and storage as a service, Entheos enables large-scale financialization of batteries, supercharging adoption.
Macro-Industry
Competitive rivalry — Low
The combination of RebelCore’s superior unit economics and the financialization of storage-as-a-service does not currently exist anywhere else. Entheos competes primarily with BMS/EMS companies on the hard tech side and with virtual power plant companies on the network side.
BMS/EMSl competitors include Element Energy, STABL, and ReElectrify Element, which have built a BMS that can handle module-level, but not cell-level control and is not currently developing a full stack battery operating system (i.e. no cloud solution/energy management system). STABL and ReElectrify are small companies out of Germany and Australia, respectively, which are roughly at the same stage in development as Entheos. Neither appears to be developing a cloud or energy management system solution.
As for Virtual Power Plant (VPP) competitors, Swell, David, OhmConnect and Leap are primarily focused on the residential market. Entheos focuses on serving enterprises as they believe that the commercial and industrial customer segment will be the ultimate wedge to deploy battery storage at scale. While residential-focused competitors attempt to grow adoption by using different incentive models including unsustainable rewards, Entheos acquires customers by offering a compelling and sustainable hard value proposition of significant energy and CapEx cost savings via their RebelCore controller.
Threat of entry — Low
The RebelCore Controller software that lowers energy cost and increases battery efficiency is proprietary to Entheos. A new entrant would not only have to offer a similarly technologically compelling battery product, but they would also have to have the proper expertise & invest significant time and capital into seeding a marketplace that could create network effects between battery owners, manufacturers and lessees.
Buyer power — Low
Energy is a non-discretionary good. Both business and individual consumers are subject to pricing based on current supply and demand as evidenced by the recent energy crisis (Source).
Supplier power — High
Entheos can have significant supply and pricing power via their proprietary software-embedded batteries as well as the take rate they decide to implement through the Entheos Capital marketplace. The caveat is that they’ll only continue to maintain high supplier power as long as their cost of goods sold (i.e. cost of manufacturing or batteries in the secondary market) remains low relative to their enterprise contract values.
Threat of substitutes — Low
Industrial and grid-scale storage is currently too expensive for customers to take advantage of. Entheos provides a unique solution that doesn’t widely exist in the market yet.
Entheos imbues energy with a network effect by leveraging finance and creating a storage-as-a-Service asset class.
Micro-Industry
The team has already secured a significant pipeline of recurring revenue with healthy margins and unit economics. Entheos customers can achieve 50% less loss, 50% lower cost and up to double the battery lifespan compared to existing solutions. This provides significant monetizable value to the end customer.
We like that Entheos is starting with a core profitable business model and then layering on blockchain technology to enhance its positioning. Tokenization of battery projects and related transaction flows amongst battery operators, owners, and lessees will reduce frictions and reduce the need for trust among multiple stakeholders. Also, the RebelCore controller remits data at a cell-by-cell level with charge/discharge performance data that can be tracked through on-chain proofs.
Even though Entheos has already established a profitable core business, they recognize the clear potential of leveraging blockchain to unlock opportunity in the renewable energy storage industry that has largely been limited by a lack of trust and exorbitant infrastructure costs. In particular, blockchain will play a key role in facilitating transparency by creating a robust information system for on-chain battery data proofs and thereby accelerating trustless capital formation for battery assets, low-cost marketplace transactions for demand and supply side participants via lightweight architecture such as Celo’s and better energy storage product distribution & accessibility through permissionless participation. Finally, as Entheos lays the groundwork for the pooling or “securitization” of assets, it may elect to launch this novel asset class natively on-chain. Such a move will increase atomicity in secondaries, slash the admin costs typically associated with securitization, and enable composability of battery assets.
Team
Entheos’ primary competitive advantages include having a core team with deep expertise across verticals including marketplace network effects, renewable energy business development and structured real world asset products on the blockchain at scale. Merjin, Entheos’ Co-Founder & CEO, built HackerOne, a unicorn company that built a workflow system that aligned incentives between companies and hackers without needing to subsidize unsustainable growth. Christian Ringvold built a next gen battery factory and marketed and sold to customers all over Europe. Teej & now-Entheos colleague Christian Petersen have a strong track record in bringing real world assets (RWAs) on-chain having originated and minted just under $1B in stablecoins against loans at MakerDAO.
Thus, we not only see a very attractive market and industry opportunity, but we believe this is the team to execute on this opportunity.
Measuring Impact
The move to alternative energy is inextricably intertwined with scalable battery storage solutions. Estimates suggest that global energy storage capacity can grow to 800 GWh by 2023, a 17x increase from the 46 GWh installed at the end of 2021 (Source).
For Entheos, we primarily measure impact success as what percent of storage capacity in 2030 will be touched by Entheos’ products or marketplace. If 80 GWh of the estimated 800 GWh has been directly or indirectly impacted by Entheos, we would view this as an enormous success in accelerating the adoption of battery solutions for scalable renewable energy.
Risks
Execution Risk
Low — The founding team consists of LithiumWerks founder (a li-on OEM sold to Reliance Industries), the HackerOne Founder (Unicorn), and the team responsible for scaling MakerDAO RWA to $750M. They have a successful track record of successfully building a category-defining marketplace, renewable energy business, and on-chain structured products.
Market Timing Risk
Low — Alternative energy consumption is growing exponentially and requires batteries to match supply with demand. The energy storage market is nascent but growing fast, the broader renewable energy space is accelerating quick enough for Entheos to capitalize on the market opportunity.
Business Model Risk
Low — Entheos has already closed on significant contractual commitments from target customers with a healthy average gross margin. They have a significant qualified pipeline of revenue and EBITDA in 2023.
Market Adoption Risk
Low — The renewable energy storage space is nascent and existing players are generally offering a Virtual Power Plant solution and/or targeting residential customers. Entheos offers a proprietary software-embedded battery with superior performance and unit economics and is hyper-focused on serving a large population of commercial and industrial customers who severely need to maintain energy costs.
Technology Risk
Low — Entheos acquired Hagal in 2022 as the energy storage solution provider and has already sold proprietary battery units to enterprise customers. This gives the team the surface area to focus on distribution to enterprise customers and investors and acquiring dominant market share.
Venture Management Risk
Low — The team has extensive experience in building successful companies and operates with high integrity. We’ve confirmed this through external references from investors who have had prior experience working with the founding team.
Regulatory risk
Low-Medium — While energy policy is country-specific and evolving, any frictions that exist in energy regulations are offset by bi-partisan climate-focused bills in Europe and the U.S. At a micro level, Entheos can accommodate regulatory heterogeneity by empowering third-party developers and local projects/providers to execute battery projects within their own jurisdiction where they have the best local knowledge. Additionally, the Entheos team has over 55 years of collective legal experience across nearly 30 countries in the renewable energy sector.
Verda believes the valuation is reasonable relative to the revenue and profitability outlook with forward estimated earnings multiple significantly below public markets. Furthermore, the battery and energy storage space is a potentially multi-trillion dollar market opportunity in which Entheos has a differentiated competitive advantage. Even though Entheos has already established a profitable core business, they recognize the importance of leveraging blockchain to unlock opportunity in the renewable energy storage industry that has largely been limited by a lack of trust and exorbitant infrastructure costs. In particular, blockchain will play a key role in facilitating transparency by creating a robust information system for on-chain battery data proofs and thereby accelerating trustless capital formation for battery assets, low-cost marketplace transactions for demand and supply side participants via lightweight architecture such as Celo’s and better energy storage product distribution & accessibility through permissionless participation. Given the core team’s strong track record with two-side marketplaces (HackerOne), Real World Asset Adoption (MakerDAO), and Energy (Hagal), we’re confident that Entheos has the right team to execute on the opportunity.
