With $125 million in new financing, the software startup has raised a whopping $350 million in 2022.
(Bloomberg) — In the next decade, millions of new cars will go electric and thousands of energy grids will switch to renewable sources. For many regular drivers and small business owners, this will mean an enormous, and very unpredictable, shift in their electricity bills.
Arcadia Power Inc. sees that as a golden opportunity. The company, based in Washington, DC, sells a software system that allows its customers — bigger companies like Ford Motor Co. and Salesforce.com Inc. — to get a single snapshot of what energy they use, how much they pay for it and where.
Arcadia, formed in 2014, spent its first seven years in the community solar business, managing accounts for renters and businesses that financed solar panels in exchange for a discount on power bills. Since November 2021 it has also offered a software service, called Arc, that collates data from utilities into an API. That’s quickly turned Arcadia into a far splashier technology startup prepping to go public soon.
Today, Arc has over 300 paying clients and accounts for roughly half of Arcadia’s business. Chief Executive Officer Kiran Bhatraju says sales from the new venture will soon outpace the solar side since the software sits at the center of the expected multi-trillion-dollar transition to clean energy.
“We’re the building block tools for others,” says Bhatraju. “Unlocking this data makes solar more effective, makes storage more valuable, makes your [electric vehicle] more valuable.”
It has made his company more valuable, too. On Friday, Arcadia announced $125 million in fresh financing, less than eight months after raising $200 million. The startup is valued at $1.5 billion. It claims to have access to the usage and tariff data for 95% of US utilities. After raising capital in May, Arcadia acquired a rival, Urjanet, allowing it to expand overseas.
Arcadia is basically banking on utilities remaining dinosaurs. All the information the startup collects — on energy usage, rates and payments — exists in electricity bills, spreadsheets, quarterly reports and PDFs. But, by Bhatraju’s telling, no one has done the legwork to sift through, aggregate and package it as usable digital tool. And he doesn’t see utility providers rushing to compete with him. “This is just not on their priority list,” he says.
The executive compares his Arc service to Plaid, the software backend that connects consumer bank accounts to financial apps like Venmo. In the same way, Arcadia wants to be invisible but useful to everyday consumers. Ford, for instance, uses Arc to sort out the best time for customers to charge their electric cars and assess how much charging will cost.
Electric vehicles present a large opportunity. Carmakers, delivery operations and trucking firms have all pledged to electrify their fleets over the coming decade, responding to ESG shareholder pressure and state laws. That shift will bring sudden changes to the price of electricity, as charging stations all jump into the grid. For companies running these fleets, that’s a big unknown in costs. “We’re just at this tipping point where this is about to become a problem,” says Jeff Osborne, managing director for sustainability and mobility at investment bank Cowen & Co LLC.
Aside from carmakers, Bhatraju says Arc is seeing “incredibly fast-growing” uptick in use in carbon accounting, the booming industry for tracking and auditing corporate emissions. Salesforce began offering Arc as an app for its clients earlier this year as part of the larger company’s emissions accounting service, Net Zero Cloud. “Basically, Arcadia solves that problem for our customers out of the box,” says Ari Alexander, the general manager for Salesforce’s net zero programs. (While Alexander says that Salesforce has seen “tremendous feedback” on Arcadia’s product, he declined to share any numbers.)
According to Bhatraju, financial technology companies have also expressed interest, particularly in Arcadia’s ability to see how often customers paid energy bills on time. Big finance is certainly interested. Hedge fund Magnetar Capital LLC joined the latest round financing Arcadia, along with existing investors Keyframe Capital Partners and Macquarie Asset Management’s Green Investment Group.
Arcadia looks like the kind of tech most investors love — light on assets, low on capital and high on margins. Bhatraju says his software business has gross margins of around 80% and will be profitable “soon.” Arcadia is considering a public listing but Bhatraju wouldn’t give any specifics on timing. “When it looks like the markets are receptive again, we may take a look,” he says. He ruled out an IPO via SPAC, the route that has devastated several renewable energy companies recently.
Osborne, the analyst, says the market for energy data is too nascent for an accurate size estimate. But there’s clearly growing demand for software to help manage the rapid changes in power usage and prices that many industries see coming. Some companies, such as Voltus Inc., have tried selling this as virtual grid providers. Osborne notes that a few solar operators and energy storage firms like Fluence Energy Inc. are also developing satellite businesses similar to Arcadia.
“That’s what everyone wants,” he says. “Whether it works or not: The jury is still out.”
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