One night in early 2009, Silicon Valley residents Tushar Dave, Premal Ashar and Tanuj Mohan were walking around Manhattan. In the mostly empty, yet twinkling skyscrapers all around them, where tourists see a city that never sleeps, the trio spotted a start-up opportunity.
"All the buildings are lit up like Christmas trees, with nobody in them. We felt energy was being wasted at such a level that it must be a very low-hanging fruit. We could do something to make these buildings more efficient," says Dave, who, along with Ashar and Mohan, founded Enlighted, Inc, which provides lighting control systems. Dave, 55, is also the chief executive of Enlighted, which splits its operations between offices in Sunnyvale, California, and Pune in India.
Enlighted is making a name for itself in the rapidly growing market for energy efficiency in buildings. Its clients include global companies such as Google, LinkedIn, HP and several other Fortune 100 companies.
Earlier this year, the company raised $20 million in series-C funding, taking its total funding to $37.4 million. The start-up's investors are top-tier global venture capital firms Kleiner Perkins Caufield & Byers, Draper Fisher Jurvetson, Intel Capital, Rockport Capital and DFJ-JAIC. "The Enlighted solution has demonstrated it can save 60-80 per cent of a building's energy consumption. While the Enlighted system includes some hardware, much of its value is embedded in its software. As a venture capital investor, this combination really appealed to us," says Don Wood, managing director of Menlo Park, California-based Draper Fisher Jurvetson.
HOW TO BUILD A SUCCESSFUL START-UP? ASK DAVE
Mumbai-born Tushar Dave, co-founder and CEO of Enlighted, is a veteran entrepreneur, known for providing successful exits to investors. Arcus and Armedia, his previous start-ups, were sold to Cypress Semiconductor and Broadcom, respectively. He shares his recipe for a successful start-up:
The primary aspect is you have to create a solution that would compel potential partners to acquire you. Whenever I create a company or an idea, the first year of that creation is spent focusing on working with customers. A lot of times, I’ve seen start-ups become very technically oriented and they lose sight of what is really required by the customer. They might have excellent technology innovation but the customer-fit doesn’t happen in the right way and missteps happen. That’s what I try to avoid by spending an inordinate amount of time with customers upfront.
Investors look for returns on investment. They look for progressive growth or predictable growth in the business, depending on whatever measurement you have. But for the investor, it’s really about the company’s revenue, how it’s growing, the profitability, getting to profitability in the timeframe projected; they sort of measure it from that perspective.
Understanding the customer is the main thing, as is putting together an effective organisation. What I try to do is balance the expense side of the company by pouring in the right resources in the US and putting in the right resources in India. So, effectively, we can create an expense structure in the company that makes it more economical.
Enlighted provides intelligent sensor technology and software designed to reduce the energy consumed by a building's lighting and heating, ventilation and air conditioning (HVAC) systems. Lighting costs are estimated to account for about a fifth of a US company's expenditure. So, a drastic cut in this space alone could save hundreds of millions of dollars for big clients that have thousands of employees in hundreds of buildings.
The start-up's installation typically involves a wireless sensor, a small clip-on to a ceiling light, for every 100 sq ft of a building. It's not only meant to cut lighting and HVAC costs, but also help clients optimise the use of space. Dave says, "Now that we have the data of this building, for every 100 sq ft, people also want to understand the occupancy of the building because then, they can say, 'Oh, if my building is 60 per cent occupied, and 40 per cent is being wasted, maybe I don't need that much space, or I can sublet that space or bring more people into it'."
The company, which started commercial operations about two years ago, has already covered about 15 million square ft and seen ten-fold growth year-on-year. Yet, it sees the energy efficiency market as a greenfield space, with potential in the US alone estimated at about 90 billion square ft, of which less than a billion is covered. Dave doesn't disclose revenue figures, but says their service costs clients around $2 a square ft. Customers can recover the costs in two years, he adds.
Experts in the sector such as Sheeraz Haji, chief executive of San Francisco-based research and advisory firm Cleantech Group, consider Enlighted to be a leader in the emerging lighting controls market. "Traditional thinking will tell you to sit back and use the established resellers, distributors, designers and third parties in the indirect sales model. To Enlighted's credit, they went out and said they would close the first number of accounts ourselves, and they've been very successful," says Haji.
Draper Fisher Jurvetson's Wood adds, "While there are competitive systems, Enlighted wins on cost-effectiveness and ease of installation. Enlighted is also pioneering some innovative financing techniques that allow building owners/lessees to avoid the upfront capital investment by sharing some of the savings with other capital providers."
Enlighted doesn't plan to go for more rounds of funding, unless it is for specific strategic purposes such as acquisition of a company or a technology. It expects to become profitable by March 2014. Now, its primary challenge is to scale up its team and operations rapidly. Wood notes, "It already has a huge backlog of business, and we expect that to grow significantly this year."
Around 25 of Enlighted's 90 employees are based in Pune. This team mostly handles technology development and customer support, which can be performed remotely; the US team focuses on sales and marketing. The company, which has installations in the US, Europe and Asia, is now starting to look at India as a promising market and is working on pricing. "There are a lot of companies that have electricity generated through UPSes or through diesel. So, the effective cost of electricity in India is significantly higher than in the US. Reducing that consumption is desired by almost each and every company we talk to," says Dave.
At his home in Saratoga, California, Dave singles out the swimming pool as the biggest energy culprit. However, he admits he's on his own in tackling that - Enlighted doesn't provide solutions for residential spaces yet.
EXPERT TAKE: Sheeraz Haji
Enlighted has seen a very positive performance in terms of customer growth and revenue growth and is getting really great brand recognition. They've been able to consistently raise capital from wonderful firms and these are all very early validation points.
They have built a direct sales model that has been very different from how most lighting products are sold in the market. They seem to have very good technology, which is very modular. You don't have to use their proprietary dashboards; they can feed into other data systems and that's been a key to their success.
The main challenge is they are primarily in the lighting controls market, which is not that distinct. So, a lot of projects are designed and built as a big project, maybe a big retrofit that includes exterior walls and interior changes in the HVAC system. So, I think how this start-up fits into that market is the biggest question. There are companies involved in diversified lighting products across any lighting space and Enlighted is a piece, a lighting control system and a sensor. How it fits in carrying out just this piece is the question.
I think now, it's a fabulous market to be in. Lighting is moving to LEDs in a huge way and one of the big benefits of LED is its ability to be controlled. This creates a big wave for people who want to put in sensors and control systems, which is exactly where Enlighted plays. The other huge trend is smart buildings. Both create a really big market opportunity for Enlighted.
I feel having offices in the US and India is a strength because it really helps the company develop products quickly and minimise the burn. I think there's amazing software talent in the Valley but it's still quite a bit more expensive than in India.
In this space, Adura and Redwood Systems have been acquired. Neither was a rockstar success, but I'm optimistic Enlighted will do well and will see a big, successful exit. You have a lot of big engineering building firms such as Honeywell, Siemens and Johnson Controls who like to grow by acquisitions, and you have a lot of big IT companies that are interested in this space.
Sheeraz Haji, CEO, Cleantech Group, San Francisco