How to escape the Valley of Death
The Valley of Death is a term known all too well by many start-up firms – and right now the energy sector has some great innovators looking to make it through. LO3 Energy CEO Lawrence Orsini explains how to do it.
Right now, many firms innovating in the energy tech space are heading into the Valley of Death.
This is the toughest point on the business development curve. It’s where false promises are caught out; where lofty visions are brought down to Earth; and where the early hype is either fulfilled or left wanting.
This is the point where many companies fail. So why, as a CEO of one of these energy tech firms, am I telling you this?
Because these are important moments for the industry, and we have to do all we can to support firms building real, viable tech in this space to build momentum for a revolution.
The development curve and the hype cycle are two important charts that cover the process companies go through as they develop new products, technologies and services.
Moving through them is a rollercoaster ride and making the right decisions, backing hype with realism, learning from mistakes, having humility and getting good partners are all key to getting out the other side.
At LO3, a core part of our technology revolves around blockchain, the much-hyped technology that was invented in 2008.
People have been trying to think of ways to use it in all sorts of different industries. Some make sense as genuine use cases; others are like using a sledgehammer to crack a nut.
Even in the energy blockchain space, there are both.
Some concepts are shoehorning blockchain in for the sake of it, when it’s not really giving any benefit – such as using it to help consumers pay their energy bills. Others have started the other way around, looking at the industry’s problems and exploring where blockchain could be a solution.
LO3 was formed from an energy background, not a crypto and blockchain technology background.
The firm’s founding members have been working in the community energy space for decades. We were there at the start. We’ve seen the benefits and we’ve seen the roadblocks.
The last 30 years have seen a radical rethink in terms of how we use energy and where we get it from. We have seen slow-moving energy utilities begin to understand there is a threat to their existence from new technologies and revolutionary visions of our energy future.
Carbon trading. Distributed renewables. Battery storage. Combined heat and power. Electric vehicles. Demand response. All these technologies and many more provide both an opportunity to the industry, but also a threat.
With environmental issues at the forefront of everyone’s conscience, those involved are starting to realize things need to move fast.
Companies and countries are increasingly bringing zero emissions targets forward, climate change activists are putting pressure to accelerate change and indisputable facts are now pointing to a crisis point for the planet.
This is a time for innovation, not stagnation.
The existing incumbents are being caught off-guard by innovative business models and they know they need to quickly start to innovate themselves or collaborate with others and adopt ideas that will help take things forward.
And one of those ideas is the integration of blockchain.
BRINGING IN BLOCKCHAIN
It didn’t take long for people to start considering the application of blockchain within the energy sector.
At LO3, we quickly saw how it could enable the creation of a transactive energy solution, a way to link all these renewable forms of energy and storage and make them function together.
Its distributed ledger system can permission access to energy data and then use a decision making process involving ‘smart contracts’ to automate energy transactions based on data and consumer choice.
Using it to create community microgrids and local energy marketplaces opens up the opportunity for peer-to-peer trading, demand response and other distribution solutions that will radically improve our energy efficiency.
So, LO3 is not a blockchain company getting into energy. We are an energy company specifically created to bring blockchain into the industry.
We launched the Brooklyn Microgrid in 2014 and in doing so developed our first generation products – our TAGe units and our proprietary blockchain. Then we got early adopters to get engaged – which they did in their droves.
Not utilities. Not regulators – far from it. Consumers and prosumers. People who knew what they wanted, but didn’t know how to get it.
And that real-world project was the perfect proof of concept.
When we began the company, we were well aware of the hype cycle thanks to our own experience and that of our early advisors.
We were trying to avoid a boom/bust, given the industry we are in – utility folks move slowly but blockchain investors dip in and out at a minute’s notice. We also never really believed a lot of the blockchain hype.
We were watching people launch projects with bad ideas and get funding. We didn’t want that kind of funding. We wanted people to invest who understood what we were doing.
There IS such a thing as raising the wrong money from the wrong people.
This is a ‘change the world’ idea, so it needs the right people behind it. So early on, our partner targets were highly strategic.
Centrica, a major global energy firm with a presence in Europe and the USA, and Siemens, a global tech firm with significant expertise in microgrids, were both companies we went after and were both ones we secured.
At the same time, other blockchain energy companies were making waves in their respective spaces – the likes of WePower, Power Ledger, Electron, EWF to name a few.
As blockchain for energy developed, many other new start-ups were formed, venture capital funding was found and first generation concepts, white papers, pilots and early stage products were created.
But on the development curve, after R&D and technology transfer comes the drop-off.
That’s the start of the plunge into the Valley of Death and, on the hype cycle, it’s the beginning of the Trough of Disillusionment.
Is this really a solution? If this is so good, why is it not snowballing into the mass market? What about bitcoin, isn’t it all a bit volatile? Is blockchain really safe? In fact, is it really of any use at all?
And just as the first companies in the blockchain energy sector started to reach this point, the blockchain industry, and most notably cryptocurrency Bitcoin, had a massive crash.
THE BITCOIN BUBBLE
Now, there is an important difference between the crypto industry and the blockchain industry.
Blockchain is tarnished with a bad name in many peoples’ eyes because of the many Crypto companies that created ‘coins’ and ‘tokens’ that simply weren’t backed by viable, valuable or realistic business models.
The number of crypto firms that disappeared without even getting past the concept stage, leaving investors holding digital wallets filled with worthless coins, runs into the high hundreds.
That sent people running at the mere mention of the word blockchain – and that meant that many companies in blockchain energy found it much harder to secure investment from that sector.
It immediately made the blockchain energy companies in the tech transfer and product learning phases that had no proven business models seriously vulnerable.
Like all innovators, we made mistakes, we changed our technology, we changed tack many times, but the fact that we were an ‘energy first’ blockchain company and had sought strategic investors from that sector kept us moving in a positive direction.
As the ‘crypto winter’ fell, we were already running live projects with our partners. Roll forward to now and we are on our second generation of physical devices and our commercialization drive is fully in gear.
There’s no denying that the bitcoin bubble made things tougher for us. Support and investment from that sector is certainly important to us – as long as it comes from companies that genuinely understand the value of what we were doing and can collaborate with us to move the tech forward.
And after a recent recovery in the market for digital assets, along with some growing use cases in other industries, we are finally starting to hear blockchain talked about it more positive tones again.
But, for us, it is the companies in the energy sector, the incumbents that I mentioned earlier who are trying to accelerate innovation, that need to ‘get it’ and get involved.
We have been speaking to countless companies that have ‘futures’ or ‘innovation’ groups and they are all cautiously exploring opportunities, trying to work out which are genuine use cases for blockchain and, crucially, which are going to be disruptive for our industry.
Transactive energy – and specifically the development of local energy markets – is most definitely one of the areas that is going to disrupt the energy industry.
The key to escaping the Valley of Death is in commercialization – but in an entirely new industry like transactive energy it needs more than that.
It needs the growth and adoption of the overall concept.
And the key to that is market readiness.
From a consumer perspective, the momentum is clearly there. More and more people are adopting green energy wherever they can, and the demand for energy options and, in particular, local energy markets is growing fast.
But the growth rate for the blockchain energy industry will depend on the acceptance of all stakeholders – from consumers to government regulators to existing market players like utilities, DSOs and the like.
From a regulatory perspective, some countries are more advanced than others but, crucially, there are some that are actually starting to create new standards that will make transactive energy truly viable.
That will be vital to the commercialization of transactive energy and, I hope, to the acceleration of the entire industry as we move ever closer to the energy industry of the future.