ENCYCLE
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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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TEXT PLACEHOLDER
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.
26 | SYNAPSE.BIO
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
SYNAPSE.BIO | 37
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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