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August 2021 Newsletter

Letter from the Editor

The 'summer of proptech' continues, with more funds (especially those focused on climate and ESG), more firms raising capital, and, more recently, more incumbents making acquisitions to shore up their product and service offerings. We're also seeing good market reports on the scale of early stage proptech investment (see the end of the newsletter for positive reports from a number of leading analysts and market observers). Optimism is very high, and for good reason.  

At Aamidor Consulting, our roster of projects continues to grow, including work with new clients and old. Our project breadth continues to include engagements with large enterprises, startups, investors and acquirers. One interesting anecdote: more and more of the interesting proptech and smart buildings news is being covered by mainstream tech publications like Tech Crunch, which is a great sign. And, as noted just above, there do appear to be more acquisitions and investments by incumbents, which may be a sign that proptech is seen more and more as a key growth strategy moving forward. For example, Motorola Solutions acquires OpenPath (after Pelco last year), Siemens invests in 75F, and Fortive continues to expand. See just below for the full summary.    

If you are trying to get through the newsletter quickly, here are a few high level takeaways:

  1. We're particularly excited to see some of the acquisitions and investments made by incumbents, including a few partnerships between them and smaller innovators.
  2. There's a number of developments on the climate/cleantech front, including new funds, covered in our last section, below.
  3. See "Industry Spotlight" for a discussion on pricing smart building solutions (hint: it still is opaque and challenging). 
  4. A number of quantitative and qualitative reports on just how much momentum PropTech has (funding in 2020 was down but 2021 appears to be on track to touch the highs of 2018 and 2019). 

We didn't publish any new articles but do have a short write up on pricing below. Additionally, Joe joined the group at Monday Live to talk about M&A and other developments in the smart building market. It was a great, open-ended discussion, which you can view here.  Please reach out if you want to hear more about what we discussed or other topics.

Related, the team that organizes Monday Live published a Smarter Stack concept focused on smart building technology stacks - have a look. The idea is to rationalize the data tools and systems in our industry, which is very important. We're supporters of this effort and optimistically look forward to vendors positioning their products within this framework. It also gives great clarity to the horizontal vs. vertical concept we've highlighted over the years (see "The pieces of the building technology stack are becoming clearer" at the end of this 2017 article, and the reference below to "undifferentiated heavy lifting (UHL)".  


And, from our lively chat.... (yes, we look forward to in person events later this year!)

 
Of course, never worry about reaching out to have a chat or talk about a potential project - busy or not, we'd be happy to talk! Please reach out if you want to chat!


Aamidor Consulting Market Resources. We've been tracking all the key industry partnerships and M+A activity, all available on this readily available site as a resource to our industry. 

 

As always, we look forward to hearing from you about how we might help with your product and market strategy needs. We also hope you enjoy this issue of Smart Building Insight.

About Our Firm

Aamidor Consulting works with software and technology vendors, investors, and building owners/operators to help them understand the smart building landscape and formulate product and market strategy. See these project summaries and detailed testimonials from some of our clients that exemplify the strategic value we provide. Our work usually falls into one of these categories:
  • Fractional product management for smart building software and solutions. If your firm is not able to hire a full time PM, we can provide that same benefit on a variable cost basis. 
  • Strategic advisory relationships with small and large firms, helping them adapt to the changing technology landscape. We routinely work with small firms and strategy/innovation teams at the largest of organizations. 
  • Working with investors to identify opportunities in the market and conduct commercial due diligence of potential deals. We have worked with leading VC and PE firms, in addition to firms acquiring startups.
Please reach out if you want to learn more. You can work with us in a variety of ways:
This monthly newsletter is provided as a resource to our industry. If the email was forwarded to you, sign up to receive it directly.

Investment News

  • New funding rounds and investments:
 
  • Acquisitions:
    • Motorola Solutions acquired OpenPath, which makes a lot of sense in light of their 2020 acquisition of video security leader Pelco (formerly part of Schneider Electric). There are a number of innovative security/access control solutions, which is a bit under-the-radar, but definitely a leading area of innovation in smart buildings. 
    • Fortive continues to expand, with an acquisition of Service Channel for $1.2B. This fits nicely with current business Accruent, among others. 
    • Biosafety startup R-Zero has acquired space utilization startup CoWorkr, with a goal on making a broad workplace software platform focused on health and wellness
    • We missed it in late June, but Madison Industries acquired Nortek Air for $3.625B, which makes a number of well-known HVAC and refrigeration brands such as Reznor, Frigidaire and Broan. Nortek was sold by Melrose Industries, which initially purchased the business in 2016. Madison also acquired Big Ass Fans
    • PE firm Partners Group is buying HVAC services firm Reedy for about $1B. Reedy owns a number of branch service firms throughout the middle of the US and looks poised to continue this roll-up strategy. This is not so different than other PE-backed firms, including Veregy, which had an exit late last year. In the future, we plan to provide more context on this growth model - from HVAC service provider and installer to broad energy solution provider. 
    • In the facility management space, Angeles Equity Partners acquired Xanitos
    • Showing its cards a bit for future growth plans. View acquired IOT and cybersecurity platform IoTium. 
    • Outside the core smart building space, but including some key players: Blackstone has acquired environment, health and safety (EHS) player Sphera, for $1.4B. There is a big ESG and sustainability data management play here. And, on a slightly related note, JP Morgan is buying OpenInvest, which is a ESG investing platform.
    • As we've shared over the past few months, here are some updates around relevant SPACs (note: generally the pace here has slowed significantly, but it's still worth covering): 
 
Industry Resources

Aamidor Consulting offers a few up-to-date resources to help smart building stakeholders monitor the market:

See our homepage to learn more about our the full breadth of our offerings.
  
Industry Spotlight

Aamidor Consulting continues to provide insight to smart building innovators in this new section. We will continue to offer deep industry analysis in future issues. Please reach out if you have questions or would like to discuss.

In recent discussions with entrepreneurs, clients, and vendors in the smart building market, it is clear that there is a renewed focus on pricing. The smart buildings industry has always suffered from price opacity, especially as new markets are created by new firms that are trying to test prices and learn about market norms. We've focused on this topic in consulting engagements and also in public articles, including this 2016 piece on the energy information systems (EIS) value proposition. Given the general interest in this topic, here are a couple new insights and thoughts on pricing strategy for smart building innovators.

Pricing becomes more complex when a solution includes hardware and software. This is especially true in real estate, where there's an increasing skepticism of proprietary hardware (both the challenge of stranded assets and the upfront capital cost of such equipment). We've seen a number of pricing models offered by vendors:
  • Standard SaaS license for software/data, plus an upfront fee for hardware.   This is very common and generally mimics what a lot of cloud-based software firms, across many markets, offer. Of course, there are some vendors that will utilize existing hardware or just refer clients to specific offerings they prefer - in those cases, any hardware spend would be outside the transaction (but may still require a capital investment).
  • Hardware + Software "lease", which rolls all the costs into a monthly fee (typically for a multi-year contract). This model usually provides upgrades/replacements to hardware, as available and necessary. But, overall, it may be a more pricey option. This model can be particularly useful for a pilot or small deployment to test a vendor's capabilities. A key question is: at what contract duration is it advantageous to buy the hardware? 
  • There's also a rise in as-a-service models that include a savings guarantee (typically energy savings). This can generate revenue for the building owner/operator - even if there are software and hardware requirements. Those costs are amortized over a multi-year period and the energy savings is greater than the spend. This model is generally not offered as a way to fund a variety of upgrades that together drive significant energy savings. ESCOs and Energy-as-a-service firms typically use a model like this. And, for more, see an article we wrote about this model a few years ago
There are other pricing models, such as a single upfront charge that includes a few subsequent years of software access. But, the list above generally highlights the key types of pricing that most buyers will identify and seriously consider. Of course, the other key question is about the prices themselves...

The market prices of competitive products remain fairly opaque. We typically advise vendors to calculate the value they deliver on average (for example, how much energy can be saved) and then try to price in a fair and expected willingness-to-pay range; usually 10-20 percent of the total value delivered. Of course, this is imprecise. The article about about the EIS value proposition cited above summarizes this line of thinking. Additionally, there are some great public data sources on pricing: the most complete, recent source we've identified is from Lawrence Berkeley National Lab (LBNL), which maintains a web site under the "Smart Energy Analytics" name, and includes great real world data on pricing and value proposition for energy management software (download the full report at this web site).  

As for the other markets, such as technologies for equipment analytics, space utilization, indoor air quality and others, market pricing is much harder to nail down, especially since the value proposition, less focused on energy savings, may be harder to quantify. First, the value realized here is less direct and tangible (and, admittedly, energy savings is quantifiable but may be hard to realize). And, the firms tend to be newer entrants, so they may still be working out their pricing. Additionally, with a hardware centric model, some costs may be baked in, providing less flexibility on pricing. For vendors in these categories, especially those at a seed stage: the most important activity is to gather feedback from clients and prospects. And, for buyers of these technologies, any pricing discussion should be combined with an understanding of the value you are able to realize from the products being considered. Sophisticated sellers of these offerings will actively support this value proposition/business case discussion. 

Action item: Proptech firms may be leaving money on the table with low pricing, though they may also miss out on deals by overcharging. At this stage of the market, it is important to validate that prices are aligned with the market and build a compelling business case to prospective buyers. Additionally, given the competitive dynamics in many markets, prices may trend down or generally fluctuate in the future. Finally, innovative pricing models that are tied to value delivered or bundle all costs into a flat fee may be more attractive to buyers, especially for initial and pilot deployments.

Aamidor Consulting supports industry innovators, investors and incumbents from strategy and planning to go-to-market. See a summary of some of our past projects for more details on how we can help.   

Noteworthy Articles, Reports and News

  • Memoori published a great blog summarizing smart building funding, noting that "funding in the Smart Buildings sector is at an all-time high as H1 2021 deal values of over $5.1B surpassed the previous record by over 5% compared with H2 2018 ($4.9B) and by over 14% in H2 2020 ($4.5B).  In terms of the number of transactions, Memoori recorded 170 funding rounds, a decrease of around 12% from H2 2020, when over 190 deals were identified."
  • Matterport just went public at the end of July, and here is an insightful interview transcript with their CEO.
  • A topic that continues to interest us, BuildingIOT provides a good summary of how healthy buildings impact productivity. 
  • A few promising developments from the Department of Energy. First, a number of grants to innovative firms, totaling $8.6M, were announced - this includes a number of friends to our firm (Congrats to all of you!). Additionally, DOE announced over 200 projects focused on various climate and energy solutions, with a total of $54M committed
  • Sent from a regular reader, this post is from a firm focused on earth observation via sensors, but the concept of undifferentiated heavy lifting (UHL) aligns with our point about vertical vs. horizontal business models. Specifically: "UHL can be defined as the expensive tasks a company undertakes in going to market that provide the company with no competitive advantage or differentiated value. Building a modern EO company is riddled with UHL and it is precisely why companies who expect to be successful still have to raise massive amounts of capital just to get to market." - avoiding UHL is also important in smart buildings, too.
  • It's a bit outside smart buildings, but this article profiles Autodesk's labs group, focusing on construction. 
   
  • Product launches:
    • JCI launches Open Blue Net Zero Buildings as a Service which appears to be similar to their performance contracting offering, but focus on a wider set of client types. This generally falls into the energy efficiency as a service (EEaaS) category.
    • LEDs Magazine noted that Acuity Brands has stepped up its technology messaging. This article has a great roundup, and we also noted that some portfolio brands, including buildingOS, are now being marketed under the Atrius banner, the firm's IOT platform. But, what about Distech?
    • It isn't specifically a new product launch, but this Forbes article highlights a few universities (Ohio State, Iowa, Idaho), which are partnering with private entities to operate their central utility plants. We've heard of a number of firms with interesting financing models to support energy upgrades and technology-based efficiency. With the funding flowing into climate funds, we expect this to continue. (Again, related to EEaaS, clearly an area of intensive interest.)
 
Our Firm in the News
  • Joe Aamidor joined Monday Live, to talk about mergers, acquisitions and general developments in the smart buildings market. You can view a recording of this chat here
If you are interested, here are all the articles we've published.  
 
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