Biomimicry Case Study: Encycle

ENCYCLE

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by Biomimicry 3.8

TEXT PLACEHOLDER Cover Photo © Encycle

by Biomimicry 3.8

A BIOMIMICRY CASE STUDY The commercialization story behind the energy demand management technology that mimics swarm behavior

Published by Synapse by Biomimicry 3.8 Written by Biomimicry Business Intelligence

© 2017 Biomimicry Advisory Services & Biomimicry 3.8. All rights reserved.

Photo: Flickr.com | Rob Bertholf

Photo © Encycle

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BIOLOGY

DESIGN

Swarm behavior exhibitedby bees allows complex behaviors through simple rules

Encycle mimics swarm behavior to automate complex energy management tasks

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Forward Biomimicry for Innovative Business Opportunities Biomimicry is not itself a product but a process, drawing on strategies observed in natural organisms and practices in order to spark innovation.

Biomimicry (from bios, meaning life, and mimesis, meaning to imitate) is a scientif ic design discipline that seeks sustainable solutions by emulating nature’s time-tested patterns and strategies.

The core idea of Biomimicry is that nature,

08

CONTRIBUTORS & SUPPORTERS

06 13

EXECUTIVE SUMMARY

19

INDUSTRY OVERVIEW

23

COMPANY OVERVIEW

27

COMMERCIALIZATION PROCESS & STRATEGY

42

FINANCIAL STRATEGY

44

FORWARD

after 3.8 billion years of research and development, has already developed solutions to many of the problems facing industry, government and agriculture.

Such problems include packaging, transportation, energy production, non-toxic chemistry, carbon sequestration, and crop production.

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CONCLUSION

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TEXT PLACEHOLDER

Contributors & Supporters RESEARCH AND EDITING Jacques Chirazi, Managing Director & Senior Editor, Biomimicry Advisory Services Constanza Jozami, Editor Gabriel Canale, Editor Mathias Einberger, Research Analyst Xinyi Wang, Research Analyst

ADVISORS Rosibel Ochoa, Executive Director, UC San Diego von Liebig Entrepreneurism Center Stuart Valentine, CEO, Centerpoint Investing Beth Rattner, Executive Director, The Biomimicry Institute Hazel Henderson, CEO, Ethical Markets Certified B Corp Katherine Collins, CEO HoneyBee Capital Jamie Brown Managing Partner, Biomimicry Switzerland Douglas Kot, Senior Sustainability Professional, DNV GL Beth Brummitt, CEO, Brummit Energy Nicole Miller, Managing Director, Biomimicry 3.8

INTERVIEWEE Mark Kerbel, CTO and Founder, Encycle

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Executive Summary Encycle Inc. is a Toronto based Energy Services provider that offers Peak Energy Demand reduction and intelligent Energy Demand Management solutions by applying the swarm logic that allows a beehive’s drones to coordinate in order to execute complex tasks. Its patented Swarm Energy Management system uses a software algorithm and wirelessly communicating control units to mimic the swarm intelligence of a beehive in order to schedule attached loads, such as different rooftop mounted HVAC units, in the most efficient way.

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EXECUTIVE SUMMARY

TEXT PLACEHOLDER

SWARM TECHNOLOGY SOLUTION FOR ENERGY DEMAND MANAGEMENT In mimicking nature’s genius, the Encycle system enables customers to shave off expensive and environmentally damaging peak demand, participate in utility demand response schemes and unlock valuable incentives, and realize energy savings through intelligently “smoothing out” energy demand.

Encycle is a young company

them to avoid having to

order to incentivize their

that was founded in 2005

service excessive peak loads

responsiveness and finance

and the company currently

during periods of spiking

enabling solutions, like Encycle.

focuses on re-investing its

energy consumption, which

If applied effectively it is

funds into a next generation

otherwise would force them to

therefore a win-win situation for

platform. Presently, one of

operate expensive and often

customers, utilities, and society

its principal locations is the

highly polluting “back-up”

as a whole through lower

California market that offers

power plants in order to meet

electricity bills and operating

the most attractive Demand

demand. The accrued savings

costs as well as reduced

Response incentive programs

from Demand Response

pollution and increased

in North America to date.

programs addressing this

efficiency.

Utility companies offer these

issue are partly passed on

programs because it allows

to electricity consumers in

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EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

THE ENCYCLE BUSINESS MODEL

FUNDING STRATEGY

Encycle’s current business

considered to provide effective

more than 6,000 of its control

During the early stages of its

million USD in funds, Encycle

importance of this kind of early

model is focused on optimizing

savings for buildings with at

units and seeks to expand

research and development

now has passed the startup

stage backing, which seems

the coordination of rooftop-

least 4-6 rooftop mounted

further into new markets with

process, the company

stage and is looking to expand

to often be crucial in proofing

mounted air-conditioning units

HVAC units, while the number

existing and new products.

managed to secure three

both its reach and scope even

the worth and viability of biomi-

of small to mid-sized buildings

of units for Encycle’s average

A highly interesting potential

consecutive sets of public

more rapidly in the future.

metic concepts that could

in the commercial sector. It

customers is approximately 15.

application of Encycle’s swarm

research grants from the

algorithm could lie in develop-

Canadian government

The combination of these two

and potentially disruptive innovation.

pursues a key-account based

bring with them a sweeping

sales model of targeting

Over time, its sales model

ments surrounding emerging

supplemented by funds

sources of funding was vital for

building operators who

has evolved from a direct

“Smart Grid” solutions such as

from angel investors. After

the survivability of Encycle’s

manage portfolios of multiple

sales approach (one building

the intelligent IT-based coordi-

having concluded two highly

nascent commercialization and

locations and buildings.

at a time) to an account

nation of Smart Metering or the

successful Series A and B

the early stages of its devel-

Examples include movie

based strategy of targeting

charging of Electric Vehicles.

funding rounds in 2011 and

opment of a proof of concept.

theater chains and retail stores,

owners and operators of large

2014 respectively, which

One of the key takeaways

but also schools and manufac-

building portfolios. To date,

together raised nearly $15

from its case therefore is the

turing facilities. The system is

the company has installed

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Industry Overview In the energy services industry, two distinct but closely intertwined and often confused conceptual terms related to Energy Services Demand Response have emerged in recent years. One is demand response and the second is holistic demand management.

DEMAND RESPONSE

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Encycle control unit. Photo © Encycle

(Energy) Demand Response

or to incentive payments

(DR), which is defined by the

designed to induce lower

Federal Energy Regulatory

electricity use at times of

Commission as: “[c]hanges

high wholesale market prices

in electric usage by end-use

or when system reliability

customers from their normal

is jeopardized”.1 In layman’s

consumption patterns in

terms, demand response

response to changes in the

simply means a voluntary

price of electricity over time,

action by electricity consumers

1 Murthy Balijepalli and Khaparde Pradhan (2011): Review of Demand Response under Smart Grid Paradigm. IEEE PES Innovative Smart Grid Technologies.

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FERC US Peak Demand Forecast Scenarios 1,000 950 900

GW

850 800 750 700 650 2009

2011

2013

2015

2017

2019

Icon © Encycle

DEMAND RESPONSE

HOLISTIC DEMAND MANAGEMENT

(commercial or residential) in

indirect problems associated

under different scenarios

order to adjust their energy

with higher operating costs

shown in the figure above.2

consumption in response

and increased pollution—the

The report also concludes that

to an economic signal, such

benefit of which they can partly

the potential reductions from

as incentives provided their

pass on to consumers in the

demand response programs

utility company. During times

form of incentives in order to

could be tremendous, but

of peaking energy demand,

motivate the necessary change

that they will also face certain

utilities often have to fall back

of behavior.

regulatory, technological and

on expensive, and often highly

other barriers.

polluting, back-up power

The Federal Energy Regulatory

plants in order to maintain

Commission conducted

the grid’s integrity. Demand

a national assessment of

2 Federal Energy Regulatory

Response programs allow

demand response potential

Commission (2009): A National

utility companies to avoid many

evaluating various levels of

Assessment of Demand Response

of the associated direct and

peak demand reductions

Potential. Staff Report June 2009

A rather recent trend in the

it out on a consistent basis

management industry in its

industry is an apparent shift

throughout the year.

entirety, it is important to

from the established DR

Naturally, there are potential

note that buildings can be

paradigm towards a trend

synergies from combining the

responsible for up to 39% of

of more holistic Demand

two approaches into one, truly

the total energy use in the

Management.3 The main

holistic system. As we will see,

US.4 Especially during peak

difference between these

this is precisely where one of

times, when large numbers

two concepts is that demand

Encycle’s biggest advantages

of consumers draw power for

management seeks to not only

is rooted.

their appliances at the same

curtail power consumption

time, the costs of energy

sporadically during peak

When analyzing the

intensive activities such

demand events, but to smooth

energy demand response/

as air-conditioning can be

3 Michael Kanellos (2010): Demand Response? Try Demand Management, retrieved from: http:// www.greentechmedia.com/articles/read/demand-response-try-demand-management 4 Terrapin Bright Green (2011): Innovative Paths to Energy Efficiency: ENCYCLE Case Study

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INDUSTRY OVERVIEW

Company Overview

tremendous. Typical times of

On a global scale, the world’s

because of their electricity

peaking demand can vary by

smart demand response

policies, do not yet have

region and season but are

market was valued at $5,041.4

a mature business model

usually associated with the

million USD in 2013. By 2025,

in place. In Japan, Encycle

early morning and/or evening

this number is expected to

has executed a licensing

hours of the day. Overall there

increase by a factor of 10,

agreement with the Bamboo

CUSTOMERS A UNIQUE AND INTEGRATED ENERGY DEMAND MANAGEMENT AND DEMAND

is a huge potential market for

growing to more than $50

Congratulations Corporation in

RESPONSE MANAGEMENT SYSTEM. ITS PATENTED SWARM ENERGY MANAGEMENT

companies in this industry.

billion USD. As of 2013, North

order to acquire customers in

Colin McKerracher, an analyst

America alone accounted for

the Japanese market.

SYSTEM USES WIRELESS ENABLED CONTROL UNITS, CLOUD COMPUTING, AND A

at Bloomberg New Energy

more than 80% of the global

Finance (BNEF), estimates that

market.6 However, new markets

Demand Response (DR) in the

such as China, Japan and

5 Boyden global executive

The methodology was

20110172845, 20110172846,

logic, the individually relatively

U.S. currently accounts for

South Korea are all starting to

research (2014): The ever-surging

conceived by Roman Kulyk

20130245853, 20130268137,

simple hardware units can

roughly 20 gigawatts (GW) or

open to the idea of Demand

demand-response industry,

and Mark Kerbel, with the

and 20130317663.

manage such complex tasks

2% of total installed capacity. In

Response and beginning to

the EU, DR capacity currently

fuel the future growth of this

amounts to only 5.4GW, but

industry. Although exhibiting

BNEF expects it to grow to 15.3GW by 2020.5

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retrieved from: http://www.boyden. com/ media/8518/13562/the_ever-

ENCYCLE INC. IS A TORONTO BASED ENERGY SERVICES PROVIDER THAT OFFERS ITS

SOFTWARE ALGORITHM THAT MIMICS THE SWARM COMMUNICATION OF A BEEHIVE.

first U.S. patent filed in 2009

like Demand Management

(application # 20090287359).

The idea is that the control

and Demand Response,

Newer patent applications

units communicate directly

using Encycle’s patented

promising potential in future

have further developed and

with each other via a wireless

beehive algorithm and thereby

growth, countries like China,

refined this “Method and

network in order to collectively

harnessing the power of swarm

Apparatus for Managing an

figure out the optimal way

logic.

Energy Consuming Load”

of operating their attached

– application numbers

loads. Utilizing this swarm

surging_demandre/index.html

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COMPANY OVERVIEW

Using a ZigBee network, controllers allow electrical lads to “talk to each other” in a swarm.

Controllers broadcast power readings to each other every 30 seconds.

Swarm Energy Cloud

ORGANIZATIONAL STRUCTURE

Each controller makes a decision every few minutes to ensure the most efficient use of energy A Gateway provides 2-way Internet communications without the need to access the site’s IP network.

Power readings and controller decisions are uploaded to the Server every 5 minutes.

Photo © Encycle

Swarm Energy Management CUSTOMER PORTAL

ENCYCLE’S PATENTED SWARM ENERGY MANAGEMENT SYSTEM The Swarm Energy Management system has demonstrated itself capable of smoothing out

Mark Kerbel currently serves

favorable incentive structure for

as the company’s CTO and

energy demand and demand

Founder and Robert Chiste

response management

serves as Chairman and

systems. Encycle’s third major

CEO. Encycle’s headquarters,

location is situated in the UK,

administration, finance, and

where the company added a

its main R&D arm are split

group of software developers

between Toronto, Canada,

to its payroll in order to further

where the company was origi-

expand its R&D activities.

nally founded by Mark Kerbel

Encycle currently maintains a

and Roman Kulyk, and the UK

total of 50 employees across

office. Its sales and opera-

all of its three locations.

MARK KERBEL

CTO & Founder

tions are conveniently based in San Marcos, California, due to the fact that the Golden State currently offers the most

demand and significantly reducing peak demand. The stated ROI of Encycle’s system is between 1 and 3 years on average and typically no more than approximately 1 year for the company’s main geographical target market of California. This remarkable indicator shows the attractiveness of the Californian market to Encycle, due to its current highly attractive incentive schemes, but also that while favorable incentives greatly boost the company’s value proposition, they are not to be considered an absolute necessity. Encycle also offers a financial structure of an ongoing service model, which has proven attractive to its customers.

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COMPANY OVERVIEW

TEXT PLACEHOLDER

CALIFORNIA INCENTIVES All but one of Encycle’s account billion in ratepayer funds to 7 Lauren Navarro (2014): EDF

representatives are currently

allocate to demand response.

based in California. Demand

Despite these sizeable efforts,

response has been given a

California has not yet met its

high priority in California’s

policy goals when it comes

“Loading Order for Electricity

to DR. The California Public

Resources and Energy Action

Utilities Commission set a goal

edf-is-calling-for-more-demand-re-

Plan”, ahead even of conven-

of “meeting five percent of the

sponse-in-california-and-why-you-

tional power plants and renew-

system’s annual peak-energy

should-too

ables. In September 2014,

demand through demand

SB 1414 was approved by the

response programs by 2007”,

governor, which encourages

which was met only by half

and incentivizes more

in 2014. However, with so

households and businesses

much importance attached to

to voluntarily deploy DR

demand response programs,

technology. From 2011 to 2013,

the market in California remains

the California Public Utilities

huge and prosperous.

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Response In California And Why You Should Too, retrieved from: http://www.forbes.com/sites/ edfenergyexchange/2014/08/18/

8 California Senate Office of Research (2014): Delivering On The Promise Of California’s Demand Response Programs: An Opportunity or the State to Maximize the Flexibility and Efficiency of Its Electrical Grid, June 2014, page 6.

9 Ibid, page 2.

Encycle installation site at Sage Hill School in Newport Beach, CA

Commission has approved $1

Is Calling For More Demand

Commercialization Process & Strategy

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COMMERCIALIZATION PROCESS & STRATEGY

EARLY DEVELOPMENT

COMMERCIALIZATION PROCESS & STRATEGY

1970

1975

1980

CONCEPT PHASE

Applied research _____

Starting in 2005, the company

In early 2007, the company

on site in order to manually

spent the first 2-2.5 years

received its first research

modify the control units, but

to develop the idea of using

funding from the Canadian

they enabled Encycle to further

swarm logic in order to

government, which was worth

refine and improve its system.

smooth out energy demand in

the equivalent of roughly

The company was subse-

buildings. It carried out tradi-

$100,000 USD. This support

quently able to finalize devel-

tional R&D work, both in the

was tied to the independent

opment of its adaptive duty

lab and in the field by testing

verification of Encycle’s system

cycle mechanism, which allows

prototypes, and began filing

by the Centennial College in

its controllers to automati-

its first patents. During this

Toronto. About one third of the

cally determine when to allow

investors _____

early stage of the development

funds were channeled to the

their attached loads to run by

3rd party verification

process, Encycle’s co-founders

Centennial Energy Institute,

communicating wirelessly.

largely had to rely on their

in order to produce a corre-

own private savings in order

sponding case study, which

It was at this point in the

to develop their original idea

assessed and confirmed the

development process that

into a viable concept. Hoping

ability of Encycle’s control

the company experimented

that their idea could later be

units to manage and achieve

with different types of building

successfully commercialized,

demand reductions of

applications, in order to identify

they took a considerable risk

attached loads.10 These early

the areas with the greatest

by injecting well over $100,000

prototype installations were

potential for its system to

USD of their own personal

not yet equipped with wireless

reduce peak demand and

funds into the project.

technology and required a PC

achieve overall demand

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Develop concept _____ Prototyping and test installations _____ Governement research funding and angel

1985

1990

1995

2000

2005

2010

2015

2020

DEVELOPMENT PHASE

COMMERCIAL PHASE

Prototype and product

Commercialization _____

refinement _____ Development of market strategy _____ Series A funding _____ Early commercialization

Business growth _____ Strategic parnership _____ Expand strategic vision _____ Series B funding

10 Herbert Sinnock and Dave Clark (2007): Data Analysis – Maestro Pilot Installations and Energy Reduction Analysis. Centennial Energy Institute.

SYNAPSE.BIO | 29

COMMERCIALIZATION PROCESS & STRATEGY

COMMERCIALIZATION PROCESS & STRATEGY

TARGET MARKETS reductions. In the summer of

building controls industry at the

he highlighted that the inter-

Encycle focuses its business

currently tailored to rooftop

2007 for example, Encycle

time, such as the OEM vendor

action between private

on operators of medium-

mounted HVAC units, which

completed a pilot installation

Johnson Controls, tended to

and government funding is

sized commercial and indus-

allow for the greatest potential

at the Toronto Hydro Energy

focus on large commercial

especially important in this

trial buildings. Full-blown

improvements in this sector.

Services Belfield facility, where

facilities (100,000 square feet

early stage of development and

building automation systems

Naturally, centralized heating

it experimented with HVAC

or more) with full-scale building

should be mutually reinforcing.

often require prohibitively

or cooling systems would allow

units, hot water tanks, and

automation systems that

Especially for highly innovative

expensive upfront installation

for little improvement through

dimmable lighting circuits.

smaller operators often could

and radical ideas such as

costs for these customers

a swarm logic based system.

Eventually, the focus was put

not or did not want to afford.

biomimetic innovations, which

while Encycle’s system comes

Encycle’s system makes most

crucially require a convincing

with relatively little upfront

sense for buildings with at least

11

on rooftop-mounted HVAC units because the dispersed

In order to finance its early

proof of concept in order to

costs because it is based on

4-6 rooftop mounted HVAC

nature of these loads allows for

development stage beyond

receive funding, this mutual

a recurring service model. It

units, and the average number

the largest potential savings

the founders’ personal savings,

reassurance for investors in

poses an efficient and relatively

of units for Encycle customers

from Encycle’s intelligent

government sponsored

form of government/private

inexpensive alternative to

is approximately 15.

swarm management system.

research funding was of

backing for projects such as

smooth out energy demand

Furthermore, Encycle’s system

great importance. However,

this is highly beneficial.

and to participate in demand

Interestingly, when the

for many operators of medium-

these public funds were also

response programs offered

company first launched its

sized commercial facilities

supplemented by investments

by utility companies for these

product, its main focus was

proved to be a very cost-ef-

from angel investors, which

customers.

on the reduction overall

fective solution to achieve

according to Encycle Founder

demand reductions in this

and CTO Mark Kerbel, was

area. Market leaders in the

just as crucial. In our interview

11 EncycleEncycle (2007): Case Study of Demand Management / Demand Response At Toronto

INDUSTRIAL

SCHOOL

peak demand. It was not until The Swarm Energy

much later that it realized the

Management system is

potential for demand response

Hydro Energy Services Belfield Facility.

THEATER

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COMMERCIALIZATION PROCESS & STRATEGY

ADVANTAGES OF ENCYCLE Demand reductions from Encycle’s systems SWARM TECHNOLOGY compare

management, especially in

According to the Federal

markets with highly appealing

Energy Regulatory Commission, 12 Federal Energy Regulatory

incentive structures. It turned

based on its “Achievable Partic-

out that Encycle’s system

ipation Scenario”, California,

would be as valuable if not

Florida, and Texas are forecast

more valuable in managing

to have the highest demand

automated demand response

response potentials in 2019,

as it is in reducing peak

with 7 GW, 9 GW, and almost 12

demand.

GW respectively. As a fraction of peak demand, Connecticut

California is therefore

(23%), Maryland (21%), and

currently the company’s main

Maine (19%) will have the

geographical target market,

highest demand response

not only because of its warm

potential by 2019.12

weather and consequently high need for air-conditioning, but primarily because of its highly generous utility incentive and reward programs. Encycle’s next most important target markets in terms of the incentive structures provided by utilities there are New York State, New England, and Texas.

COMMERCIALIZATION PROCESS & STRATEGY

d to conventional technologies

Electrical Demand

Commission, page 42.

2:00

2:15

2:30

2:45

3:00

TRADITIONAL METHOD

2:00

2:15

2:30

2:45

3:00

SWARM LOGIC METHOD

2:00

2:15

2:30

2:45

3:00

AUTOMATED DR EVENT

Low Upfront Cost

Peak Demand Management

inside the building will not be

One of the Encycle product’s

The relatively simple Encycle

affected. Instead the controllers

key unique selling propositions

controllers are installed

wirelessly communicate with

is that it comes with relatively

directly at each rooftop HVAC

each other in order to collec-

little upfront installation costs,

unit and directly regulate the

tively schedule the timing for

compared to full-scale building

attached loads. Each controller

each HVAC unit’s “natural”

automation systems, but can

is capable of managing the

duty cycle. This way, peak

yield equal if not better results

respective duty cycle of the

demand can be smoothed out,

in terms of energy demand

load under its control. They are

by avoiding the unnecessary

management and automated

usually set to not to interfere

and excessive simultaneous

demand response.

with the overall level of these

operation of multiple loads

duty cycles, so that the overall

during peak times, when

occupancy comfort in terms

electricity prices are highest.

of temperature and humidity

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COMMERCIALIZATION PROCESS & STRATEGY

CUSTOMER

PORTFOLIO

COMMERCIALIZATION PROCESS & STRATEGY

EXISTING SYSTEM

PEAK REDUCTION

ENERGY SAVINGS

DOLLAR SAVINGS

Manual demand response

11 kW avg. monthly peak reduction

16,181 kWh avg. monthly savings

$22,232 avg. annual portfolio savings **

55 kW avg. monthly peak reduction

11,620 kWh avg. monthly savings *

$24,451 total annual savings 2013

26 kW avg. monthly peak reduction

4,418 kWh avg. monthly savings per site *

$54,810† average annual portfolio savings *

Unlocking Incentives

Rebound Optimization

Performance Data

The control units curb their

Another advantage of Encycle’s

Accessibility

loads in order to alleviate the

patented Swarm Energy

The use of cloud computing

utility’s stress from currently

Management system is that

together with Encycle’s

spiking overall energy demand,

in the case of a Demand

specialized software further

which generates rewards in

Response (DR) event,

offers important benefits

the form of monetary incen-

occupancy comfort can still be

to building operators and

tives. It is interesting to note

maintained to a large degree

facility managers. It allows

that the largest annual dollar

and the typical DR-rebound is

them to access building data,

savings coincide with the

avoided. This rebound usually

monitor important indicators,

second lowest energy savings.

occurs when a building’s

and even modify the control

Incentives seem to be a prime

air-conditioning units all switch

units and their schedules

source of customer savings,

back on simultaneously after

from wherever they are.

rather than mere bottom-line

having been curbed during a

They are able to change

demand reductions. The

DR event in order to make up

temperature thresholds, adjust

collaboration and maintenance

for increased temperature and

load-schedules, or monitor

of a favorable professional

humidity inside the building

and adjust demand-response

relationship with the utilities,

leading to a sudden spike in

events remotely from their

* Author’s calculations based on annual figures provided by Encycle

in order to unlock the full

demand and defeating the

laptops or even smartphones,

** Author’s calculations based on total portfolio savings since project completion provided by Encycle

potential of their DR award

entire point of conducting

as long as there is Internet

*** Retailer has since expanded to over 200 locations and benefited from $1M in savings from Encycle solution

and incentive programs, is

demand response in the first

access. This provides them

† These annual savings refer to the initial 3 locations alone

therefore of great importance

place. Encycle’s system avoids

with an efficient and conve-

for Encycle. These incentives

this pitfall by smoothing in and

nient way to employ demand

constitute a large proportion of

out of the DR event using its

management and demand

accrued customer savings and

swarm logic.

response across even a

Engineering & Manufacturing Company in Rancho Santa Margarita, CA Completed 2012

Sage High School in Newport Coast, CA Completed 2012

Movie theater chain in New Mexico Completed 2011

Big box discount retailer*** Completed 2010

1 facility 27 HVAC units

1 facility 26 HVAC units

Initially 3, later 11 theaters across New Mexico

6 stores across California, New Mexico, and Texas

Energy demand management system with manual DR Centralized building automation system in 3 of 11 sites

Building automation system

31 kW avg. monthly peak reduction

3,934 kWh avg. monthly savings per site *

$30,385 average annual portfolio savings *

Operating Costs Savings

air-conditioning units will run

demand. When demand

Based on a number of case

each according to their own

management is employed,

studies issued by Encycle,

schedule, which very often

such spikes can be avoided by

the company’s Swarm Energy

results in many or even all

smoothing out demand through

Management system can

of them running at the same

the intelligent scheduling and

save its customers real

time, a practice that causes

coordination of different loads.

money. Usually uncontrolled

expensive spikes in peak

34 | SYNAPSE.BIO

therefore also weigh heavily on

large portfolio of buildings,

the ROI.

regardless of where they oversee it from.

SYNAPSE.BIO | 35

COMMERCIALIZATION PROCESS & STRATEGY

COMMERCIALIZATION PROCESS & STRATEGY

SERVICE SUBSCRIPTION PRICING MODEL

SALES STRATEGY & LIMITS

Due to commonly available

This includes the service

Encycle’s sales model has

after the system’s performance

In Southern California, Encycle

incentives from utility

charge for Encycle’s cloud

evolved from a direct sales

has been demonstrated.

recently reintroduced a direct

companies and the simplicity

computing software, which is

approach of one building at

One caveat to this approach

sale model approach, because

of Encycle’s control units, their

necessary to set and monitor

a time, to an account based

is that, since the company’s

there the incremental revenue

upfront installation costs are

the control units, but also

approach that mainly targets

service is currently primarily

derived from these sales

relatively inexpensive and often to participate in Automated

property owners of a large

air-conditioning based, the

warrants the effort. However,

even negligible. While the main

Demand Response (ADR). The

portfolio of buildings. The first

demonstration of the product’s

portfolio operator focused

source of revenue is currently

fee however also covers the

stage in the typical procedure

capabilities naturally has to

sales continue to dominate

generated through the fees for

warranty for the controllers, as

for this customer acquisition

occur during the summer. Such

the company’s overall sales

purchasing these controllers,

well as software and firmware

strategy is the initial demon-

a narrow annual time frame

approach, because they

the company is shifting towards

updates provided by Encycle.

stration of the product’s

for convincing large portfolio

have proven to be more cost

a recurring service charge

The company’s pricing strategy

capabilities at only one or just

customers of the viability of

effective than a direct sales

model in which annual fees are

thus constitutes a typical

a few locations among the

the product for a portfolio wide

model at the end of the day.

projected to become a more

recurring service model with

customer’s portfolio. This first

adoption therefore puts a cap

sizable portion of revenues.

little upfront costs.

step is then usually followed

on the company’s possible

by a massive rollout across

growth rate.

the customer’s entire portfolio,

36 | SYNAPSE.BIO

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COMMERCIALIZATION PROCESS & STRATEGY

COMMERCIALIZATION PROCESS & STRATEGY

DISTRIBUTION & COLLABORATIVE REVENUE GENERATION

GROWTH & CONSTRAINTS

For installing the Encycle

reach of its product one step

developments in the OEM

Encycle’s patented Swarm

but is usually constrained by

effectiveness of the product

controllers, the company

further, Encycle has formed an

sector and trying to form

Energy Management system

different factors. In most cases

to new customers through

collaborates with a small

important strategic partnership

strategic partnerships and

has come a long way since the

capital constraints pose the

installations at test-sites, this

number (4-5) of large regional

with the cooling giant Carrier.

distribution deals with large

early prototypes were installed

greatest inhibitor to faster

can often only occur during

or national installers. The

Having signed a distribution

players such as Carrier for

and tested at commercial

growth. In Encycle’s case

the summer months—unless

company’s sales-by-ac-

deal, Carrier markets and sells

existing and new products

buildings around Toronto, to

however, other factors seem

a warm climate such as that in

count approach also helps

Encycle’s product under its

will be an interesting and

become the sophisticated

to be more important and

Southern California, where high

to leverage the scale of

own Energy Demand System

promising strategy for Encycle

system and nicely branded

pose almost natural growth

temperatures can hit or exceed

its projects for contracting

(EDS) brand. Subsequently,

in the future.

controllers the company offers

constraints to the company’s

80F even during the fall and

installation companies. By

customers are forwarded

today. At the time of writing,

business model.

spring, allows for effective

assigning them an entire block

to enroll in Encycle’s cloud

more than 6,000 Encycle

of buildings rather than one

service, without which the

controllers have been installed

One of them has to do with

at a time, their crews can be

control units themselves are

at approximately 600 building

the fact that its service is

Yet, as Encycle’s CTO and

provided continuous work for

of little actual value. Thus the

sites.

primarily air-conditioning

Founder Mark Kerbel points

weeks, which helps them to

main revenue stream flowing

based. This prescribes a

out, markets with electrical

cut idle time and costs, heavily

from its recurring service model

Encycle’s CTO and Founder,

natural geographical type

cooling and heating needs

impacting their bottom line.

remains intact for Encycle,

Mark Kerbel, hopes to see the

of core markets such as the

offer potentially even better

A good working relationship

while Carrier can leverage its

company approximately double

U.S. Southwest, at the same

savings that warm climates

with these companies is an

strong distribution arm in order

its existing customer base over

time rendering colder regions

alone, hence the company’s

important asset for Encycle’s

to get large numbers of control

the course of the next 12-36

less attractive. Additionally,

interest in expanding into

business model.

units out to the market.

months. Of course more growth

the focus on air-conditioning

Japan, where buildings use

In taking the distribution and

Closely monitoring

would always be desirable,

means that when proving the

the same rooftop units for

38 | SYNAPSE.BIO

demonstrations year-round.

SYNAPSE.BIO | 39

COMMERCIALIZATION PROCESS & STRATEGY

COMMERCIALIZATION PROCESS & STRATEGY

both purposes. According

such as those inspired by

Encycle’s recurring service

applying the Encycle concept

Although the software-based

to tapping the web-enabled

to Mr. Kerbel, Encycle’s next

biomimicry. As the company

model not only generates a

to web-enabled devices in

recurring service model

device market noted above, it

generation platform will allow

grows and accumulates

continuous revenue stream,

order to unlock the potential

provides customers with

has long eyed the EV market

the company to integrate

reputation and brand recog-

which is good for finances, but

of the “swarm in the cloud”.

significant additional value

to apply its technology in

seamlessly with certain styles

nition, this issue will however

also necessitates a continuous

For this purpose, Encycle

by keeping the system up to

order to help utility companies

of building control systems in

likely be alleviated. Encycle is

effort to manage an ever

has partnered up with the

date with continuous software

coordinate peaking demands

regions even in the U.S. where

beyond the stage of proving

increasing customer base

IOT firm Ayla Networks and

and firmware updates, the

for EVs plugging into the grid.

electrical heating is common,

the basic viability and technical

and portfolio of control units,

Carrier, in order to translate

hardware itself is difficult to

A recently concluded, highly

further helping mitigate the

feasibility of its product, now

which puts natural strains on

the benefits of swarm logic

substantially improve based on

successful Series B round of

seasonal sales element of its

it has to work on gradually

management. This is why Mr.

communication to customers

current technology offerings.

funding may provide what is

existing business.

removing the need for demon-

Kerbel emphasizes an organic

with e.g. web-enabled thermo-

Yet Encycle’s R&D teams are

needed for exciting new devel-

strating the product’s effec-

growth trajectory in his vision

stats. This new platform could

working on a next generation

opments from Encycle.

Encycle is still at a relatively

tiveness to customers by

for the company’s future, in

open up new sizeable markets

controller and cloud platform

early stage of its expected life

building reputation and brand

order to avoid overstretching

for the company to tap and

that is designed not only to

cycle. Therefore, its ingenious

awareness.

and deteriorating service

should constitute its next

provide better information, but

quality due to excessively

major wave of growth after

also more computational power

innovation mimicking the swarm logic of a beehive still

Another cap on Encycle’s

rapid growth. A further push

2017. Encycle has also recently

on site, in order to dramatically

must be proven to potential

growth however, is a sheer

for the company’s growth

launched the Swarm Service

reduce the operational efforts

new customers. This is a

manageability issue, which

may however come from a

which integrates with building

needed to manage these sites.

common problem for all

comes with increasing scale in

different direction, as the R&D

automation systems, starting

Furthermore, the company

innovations, but it is especially

any growing business.

teams in both the UK and

with energy management

instead seeks entirely new

Toronto have been working on

solutions provider Zen

frontiers to apply its patented

Ecosystems.

swarm algorithm. In addition

for the most disruptive ones

40 | SYNAPSE.BIO

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Financial Strategy

SINCE THE COMPANY’S ESTABLISHMENT IN 2005, ENCYCLE HAS UNDERGONE THE THREE CLASSICAL PHASES OF THE STARTUP FORMATION PROCESS—STARTUP FUNDING, SERIES A, AND SERIES B.

Private savings

Three consecutive rounds of government

Series A funding

Series B funding

of founders

funding and angel investment

($7.5 million)

($7 million)

2005

2006

2007

2008

2009

STARTUP FUNDING

2010

2011

2012

2013

SERIES A

In order to finance its early

the United States. These funds

because the existence of each

prototype installation and

were partly channeled to the

tends to reassure the other in

evaluation projects in and

Centennial Energy Institute in

a mutually reinforcing process.

around Toronto, the company

Toronto in order to conduct

About ⅔ to 3/4 of funding in

accrued research funding from

independent third party verifi-

the company’s early years

the Canadian government,

cation of Encycle’s prototypes

came from private investors,

similar to the SBIR/STTR (Small

and were supplemented by

while government funding

Business Innovation Research

private angel investment.

primarily took the shape of a

/ Small Business Technology

Both government funding and

convertible loan.

Transfer) government funds in

private investors are needed

2014 SERIES B

Encycle’s Series A round of

topped up by existing private

Series B funding closed in

funding in 2011 raised $7.5

shareholders. These funds

2014, and raised close to $7

million USD in total, which

enabled the company to move

million USD from EnerTech

sparked the conversion of

its operations to the US, with

Capital, Export Development

its government loan. In the

a new base in San Marcos,

Canada (EDC), and a major US

process, the company took on

in order to tap the promising

utility company. The existing

two venture capital partners,

California market.

shareholders BDC Capital and

BDC Capital and NGEN

NGEN Partners topped up

Partners, whose total of $5.5

these funds to a total of over

million USD contribution was

$12 million USD.13

13 Deal Feed (2014): Series B Financing (USD12m): Export Development Canada/EncycleEncycle Inc., retrieved from: http://www.dealfeed-intl.com/series-b-financing-usd12m-export-development-canada-ENCYCLE-energy-inc-

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Conclusion THE ROAD AHEAD

Lessons Learned

DIVERSE FUNDING SOURCES GENERATES INVESTOR CONFIDENCE

The recently completed and highly successful Series B round of funding will open up a range of

For young startup companies proposing innovative and potentially disruptive but also unproven

new opportunities for the company to expand its reach and/or scope in exciting new ways before

technologies like Encycle, the mutually reinforcing assurance that the presence of both public

anyone at Encycle is likely to think of exit strategy. The company could, for example, use these funds to step into the vast and still largely uncharted territories of Smart Grid technologies or

and private funding provides is critical, especially in the early stages of the commercialization process.

apply its swarm algorithm to the intelligent demand management of web-enabled thermostats or even electric vehicles. The opening of such new frontiers would not only enable Encycle to tap potentially huge future growth markets, but also significantly diversify risk in times of heightened regulatory uncertainty in the DR industry amid a legal battle between load aggregators and traditional power generators.

DON’T UNDERESTIMATE FUNDING EFFORT

The successful completion of the startup funding process is the perhaps most critical strain on a young company’s management. Even once the initial critical barrier of proofing the concept is overcome however, the time and effort required to attract and secure new investors remains substantial.

POTENTIAL EXIT STRATEGIES

For the future of Encycle in terms of a possible exit strategy, there are two basic options on the table: IPO or acquisition. While acquisition, for which large utilities or companies like Siemens, GE, or CISCO would appear to be likely candidates, seems to be the most viable scenario for the company’s exit strategy, the current business

SEASONAL CONDITIONS CAN BE INHIBITOR TO GROWTH

Contrary to conventional wisdom, Encycle’s case shows that a lack of funding does not always have to be the most important inhibitor to faster growth—sometimes there also exist certain “natural” growth constraints peculiar to the business model.

model seems to be reasonably sound and stable enough for Encycle to be able to continue to operate and grow for many years to come, without having to worry too much about securing a potential buy-out.

PROOF OF CONCEPT IS CRITICAL AT ALL STAGES OF DEVELOPMENT

A convincing proof of concept is vital for these biomimetic innovators – this is especially true during the early stages of the commercialization process, but seems to hold well into the more mature phases of the business cycle: - First independent third-party verification was crucial for Encycle’s securing of government funding; - The company’s ability to show a convincing proof of concept remains vital in terms of customer acquisition.

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For more information about Encycle Encycle.com Sales inquiries can be directed to: Mark Kerbel mark.kerbel@encycle.com

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