Welcome to “10 Ways to Win in Climate Software,” an Energize series defining the playbook for sustainability SaaS entrepreneurs. In case you missed it, catch up on our series opener and the Ways to Win countdown:
As we near the end of our “Ways to Win in Climate Software” series, we arrive at three words that we heard often from the Energize team when crowdsourcing our top advice for climate SaaS founders: “Align to revenue.” In other words, make sure your solution solves a problem for a high revenue-growth industry and accelerates revenue for your customers. Your company could have the best sales strategy, marketing initiatives or pricing model, but if a) the industry your software serves is stagnated and b) your software focuses solely on reducing costs versus driving revenue growth, you may run into some very real limitations. By contrast, revenue-aligned companies have an organic growth rate embedded into their DNA and will continue to grow as the users, product volume and spend from their customer base increases.
At Energize, we believe this advice is particularly salient for climate software companies. As we discussed in our previous blog on the power of climate product-led growth, many businesses in the climate ecosystem are currently undergoing massive growth spurts and transforming into significant spenders on software. Unsurprisingly, the fastest growth we see for climate software companies happens in climate categories with compound annual growth rates (CAGR) of 15 to 30 percent or more and where digital adoption is also exploding: from mature markets like rooftop solar (16 percent CAGR), to emerging markets like batteries (38 percent CAGR) and EV charging (34 percent CAGR), to nascent ones like carbon markets (70 percent CAGR).
Despite concerns from other investors regarding nascent markets or small total addressable markets (TAMs), we believe climate software founders should lean into the strong tailwinds powering climate tech categories. In our experience, revenue-aligned companies are more likely to have shorter sales cycles, higher net dollar retention rates, faster customer expansion, stronger capital efficiency and lower churn than their peers in stalled categories. Combine industry growth with rapidly rising digital adoption, and climate software companies can ride the ensuing wave to their own annual recurring revenue (ARR) growth.
Comparing growth rates for two different industries served by software startups can illustrate the exponential effect of convergent growth tailwinds well. Imagine two SaaS companies, both starting with 10 percent software adoption in 2017 and being projected to reach 90 percent software adoption by 2030. Both companies started with $10 million annual recurring revenue. Based on Energize’s internal analysis, Company A will reach $625 million ARR by 2030 while Company B will stagnate at $117 million. The difference? Company A sells renewable energy software – an industry with a year-over-year (YoY) growth rate of 16 percent through 2030 – while Company B sells manufacturing quality software with only a two percent YoY growth rate.
Energize portfolio company Aurora Solar is an example of a software company aligning to revenue in a high-growth industry. Aurora’s platform streamlines the design sales and delivery process for solar projects. Aurora’s software enables their solar installer customers to increase their own efficiency and revenue. As the solar market has experienced rapid revenue growth and has readily adopted digital tools over the last decade, Aurora has grown alongside it. In 2022, solar investment grew 36 percent year-on-year to $308 billion, and Aurora enabled their 10 millionth solar roof design.
“We recognized in the early 2010s that software solutions were necessary to make the solar market scalable,” said Christopher Hopper, Aurora Solar’s co-founder and CEO. “Aurora was architected to accelerate customer revenue and reduce costs from the start, improving solar sale close rates, reducing sales cycles, eliminating costs associated with site visits and rework due to inaccurate designs, and more. We created a foothold within the booming solar industry and aligned ourselves to our customers' success as their businesses grew – 90 percent of top residential US solar companies use Aurora’s solar sales, design and delivery software.”
Beyond positioning your company within high-growth industries, the Energize team recommends a few additional strategies to help climate software companies further align to revenue:
1. Build a product that accelerates revenue for your customer.
Products that increase customer revenue growth generally have a smoother value proposition and business case for the buyer seeking budget approval than products with other value propositions like cutting costs or managing risks. Aurora was able to help their customer Infinity Energy reduce their time to proposal by 75 percent and increase inside sales volume by 14 times. Quantifiably accelerating revenue creates a strong justification for increasing software spend. Many climate-oriented companies in fast-growing markets are building their IT and software stack for the first time, making climate software fertile ground for solutions that accelerate revenue.
2. Offer a multi-product layer cake.
Identifying multiple pain points and product gaps in a growing market allows climate software companies to harness industry tailwinds from numerous touchpoints. For example, our portfolio company Monta’s all-in-one EV charging software serves customers across the EV ecosystem, from helping EV drivers locate nearby charging stations to allowing site owners to control charge point access and set costs. Monta aligns their revenue growth with each new use case they introduce to optimize the skyrocketing EV market. A multi-product growth strategy is imperative in vertical software markets – especially vertical climate software markets – which tend to be logo-constrained.
3. Accelerate customer digital adoption.
Removing access barriers like restrictive payment models and prioritizing easy user adoption will allow for more rapid customer expansion and ARR growth. For example, by building a pricing model that encourages user adoption, our portfolio company DroneDeploy has been able to quickly grow the customer base for their reality capture software in high-growth areas across the energy sector, including solar.
In summary, serving high-growth industries and increasing customers’ revenues allows climate software companies to tap into growth tailwinds. And as increased private-sector spending and government incentives continue to propel the climate sector, climate software companies have the natural opportunity to convert their category’s high CAGR into a major revenue boost of their own.
Next up? Ways to Win in Climate Software #1: Find Product-Budget Fit
This article represents the views of the author and is provided for informational purposes only. It is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Readers should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Information is subject to change based on market or other conditions.