Behind the Term Sheet: David Energy’s $23M Series A
How this NY-based startup is building the operating system for the clean energy grid while revolutionizing what it means to be a retail energy provider
Written by Jonathan Healy & Simon Wu; Edited by Jaclyn Hartnett
Renewables are projected to surpass coal as the largest source of electricity generation globally by 2025 (IEA).
This is good news for people and planet. Not only does the clean energy transition decarbonize the energy sector (the largest contributor to climate change), but it means a cheaper, more resilient energy system.
However, as renewable energy sources like wind and solar are integrated into the grid, their intermittent nature creates challenges for maintaining a stable supply.
How to combat this? Grid flexibility.
With the growing adoption of distributed energy resources (DERs) and connected devices, paired with programs like demand response (DR), we can create a better balance of supply and demand — reducing the need for expensive and carbon-intensive peak power. These are challenges that the current goliaths of the industry (e.g., utilities) are not equipped or financially incentivized to address.
Que David Energy — the NYC-based gridtech company building the operating system of the clean energy grid. This startup is bridging a major gap between today’s infrastructure and tomorrow’s technology while redefining what it means to be a retail energy provider (REP). It does this by supplying electricity to residential and commercial customers and offering a modern platform that optimizes the use of renewable energy sources. With vertical integration of automated demand response, control of devices and electricity supply, David Energy uniquely connects the dots between demand and supply in real time — providing the most transparent and reliable consumption experience while minimizing costs. The mission? Running the grid on clean energy 24/7/365.
Today, we’re excited to announce our partnership with David Energy — leading its $23M Series A-1 alongside prior investors, Union Square Ventures, Keyframe Capital, Equal Ventures, BoxGroup and more. This group represents top-tier backers of climate tech and speaks to David Energy’s success from ideation to execution.
Here’s why we believe David Energy is set to revolutionize REPs and transform the energy sector.
FIRST, THE MARKET — ENERGY AT AN INFLECTION POINT
Real load growth for the first time in a generation, historic levels of weather volatility and annual power interruptions, and a surge in renewable energy have created the perfect tailwinds for transformation.
A little background…
Most people are familiar with their utility (e.g., PG&E, Dominion or ConEdison), which generally provides transmission and distribution services. In deregulated markets, there are also Retail Energy Providers (REPs), which sell the electrons flowing across poles and wires to homes and businesses (similar to how Amazon ships goods on public roads).
REPs have existed since energy deregulation in the US circa the early 2000’s to optimize supply and demand through competitive markets. Energy, a commodity, requires immense scale to realize profits and innovation. Back then, electricity primarily came from centralized utilities and non-renewable sources (92.3% in 2001) while connected home devices (e.g., Nest thermostats, Tesla Powerwall) had marginal penetration. Combine this with base on-premise generation and you get a dearth of innovation.
The last decade saw real change. Renewable energy sources, including DERs, saw a proliferation representing 21.4% of electricity generation in the US in 2023. Connected devices have also taken off (take the electric vehicles boom as one example). Pairing DERs and connected devices allows for a previously untenable connection between supply and demand where customers can profit.
Keep in mind the US retail energy market is worth approximately $400B (as of 2022) and still predominantly relies on legacy centralized power generators that are hamstrung by perverse incentivization to maintain the status-quo and squeeze ROI from existing capital expenditures (sometimes decade-old investments). Not to mention the mounting grid volatility that adds instability to this economic model (as observed in the 2021 Texas Power Crisis).
Problem 1: Structural market inadequacies
The retail markets (grossly oversimplified here) are structured in a way where energy producers and retailers are penalized in more volatile markets.
- Retailers have to buy power in “one size” blocks… Each power plant produces power at more or less set times and prices. Because plants are hard to turn on and off, a retailer can only buy power for the daytime (16 hr block) or nighttime (8 hr block), trying to match complex demand with rectangular blocks, exposing them to volatility.
- …and operate on centralized power. Traditional providers are threatened by individuals’ power generation abilities and aren’t incentivized to optimize consumption through DR programs or home power plants — instead, relying on existing peaker plants that require recoupment of investment. Additionally, weather volatility has exacerbated the centralized model with a 78% increase in weather-related power outages decade-over-decade.
Problem 2: Energy bills…where is the transparency?
Everyone knows their monthly energy bill, but not how the rate is constructed or, in deregulated markets, if it’s a fair price. This has eroded customer trust, from residential to commercial.
- Charges historically align to the meter level that tracks overall energy usage (sometimes utilities employ non-direct estimated readings).
- This breaks down a layer deeper — with no visibility on charges from things like HVAC vs. cold refrigeration. Imagine extending this to a franchise owner with identical stores in four different locations with four different bills at four different rates.
Problem 3: SMBs are underserved
Energy efficiency operations can be a large cost center. Large Commercial and Industrial (C&I) customers have dedicated teams for this whereas the small commercial segment, made up of restaurants, gyms and retail stores, do not.
- SMBs can realize energy expenses in the $10–100k’s range — short of justifying a new hire but large enough to impact profitability.
- Useful tools to inform energy purchasing (e.g., bill parsing or device consumption data) evades this customer subset — instead, relying on unscrupulous energy companies’ “cost reduction” schemes.
ENTER DAVID (ENERGY) VS. GOLIATH — FOR A DISTRIBUTED GRID THAT’S CHEAPER, GREENER AND MORE RESILIENT
“The core challenge in operating modern grids is managing the volatility brought on by renewables. No grid operator, retailer, or vertically integrated utility across the globe has solved this problem and that’s precisely what we intend to do. Since renewables are essentially free when they’re producing, there is a massive opportunity to supply structurally cheaper power to customers.”
James McGinniss, CEO of David Energy
David Energy is a tech-forward, vertically integrated REP that wields volatility as a monetization driver and rides the global connected device trend to lower energy prices. By building a distributed network of connected devices (e.g., batteries, solar panels, EVs, and smart thermostats) that respond to fluctuations of clean energy generation in real-time, it empowers customers with DERs to challenge today’s goliath energy companies.
The company provides electricity to customers (e.g., residential homeowners, commercial businesses) along with virtual power plant (VPP) services. In doing so, it becomes the interconnection point of supply and demand — leveraging customer demand data to inform the retail supply end of the business.
A few of the most promising elements:
- The People — deep energy & tech chops critical for success in regulated market: nimble 0–1 and 1–100 mindset of seasoned operators and startup practitioners. Founder James McGinniss is a leading voice on DERs (started community-based forum DER Task Force), with a Master’s in Mechanical Engineering from UT Austin and research on all things energy markets and next-gen grid infrastructure. There’s also energy market savant Chaitu Parikh (previously COO at Crius Energy, acquired by Vistra in 2019, and MXenergy, acquired by Constellation in 2011), deep technical and program expert Sam Strasser (prev Microsoft, Summit Public Schools, Brightwheel) and experienced operator Brett Lotito (prev Opendoor, Oscar Health).
- The Repeatable Growth — proof in the increased flow of electrons: demonstrated significant growth and stickiness, particularly in its core, underserved SMB segment. 3x YoY growth, 1,000+ locations across New York, New Jersey, Massachusetts and Texas, 60+ new brands (e.g., Equinox, Wingstop, Subway, Orangetheory Fitness). Customer churn is near zero, replicated with high levels of white-glove-service. They’ve also refined their residential strategy to focus on the most advantageous connected customers — those with batteries, providing a stronger base for demand response and physical hedging. Overall, the number of David Energy-connected devices has grown 10x since last year, making them the most holistic new age energy retailer in the US.
- The Economics — physical (not financial) hedging: primed for scale efficiency. REPs typically purchase hedges (blocks of energy bought in advance to match demand). David Energy, via its retail+vpp model, enacts a “physical hedge” by utilizing control of connected devices (granted by customers) to reduce peak demand times. This lessens the need for financial hedges (increasing margins) and lowers customer’s energy cost — win-win scenario. At scale, this enables lower prices compared to other REPs, garnering more customers with more devices, more physical hedges (less financial) — the next-gen energy retailer flywheel.
- The Value-Add — an energy partner, not just provider: David Energy created their “Trusted Energy Advisor” program, to go above-and-beyond via a value-add service that helps breakdown energy consumption and provide practical recommendations based on real, personalized data from a given customer.
PARTING THOUGHTS — A RETAIL ENERGY RENAISSANCE
At Cathay Innovation, we’re fortunate to count major energy investors in our fund, like TotalEnergies, providing perspective on customer or supplier pain-points and the energy ecosystem at large. This has been exemplified in investments such as Wallbox (NYSE: WBX), Descartes Underwriting and Beem — underpinning the most pivotal transition the sector has seen.
A renaissance of the retail energy market is long overdue. By running the grid on clean energy 24/7/365, up-leveling transparency, and structurally enabling a more efficient and cheaper service, we believe David Energy can further emblazon the green revolution.
With subject matter expertise and a first mover advantage in the US, David Energy is set to play the iconic role it takes its namesake after, upending the goliaths of the energy sector. This round represents just one small stone’s throw in David Energy’s larger market-defining journey and we couldn’t be more thrilled to join the ride.
CAREERS — DAVID ENERGY
Want to save the planet and work towards a 100% renewable powered grid? Checkout the link below to join the fight against Goliath:
For more insights on the world of AI and startups across our key sectors, check out our previous posts:
