2012 Sustainable Living Thesis

Physic Ventures follows a thesis driven investment practice.  At the beginning of each year we review the recent science and technology developments, markets trends, and regulatory drivers that influence our investment practice. We use these to develop a thesis for which sectors and business models we expect to provide attractive investment opportunities.

Throughout the year we select some of these sectors to perform a deep-dive landscape analysis.  We talk with numerous companies in the sector, their customers, their suppliers, and their competitors.  We develop a position on what we think the leading company in a given sector should look like.  If there’s already a company that fits our model, then we’ll explore whether we can invest in that company.  If such a company doesn’t exist and we think the opportunity is large enough, then we recruit the entrepreneurs, acquire the technology and identifying the partners to create a category leading company.

Here is the first draft of our 2012 Sustainable Living investment thesis.  For regular readers of this blog, you won’t be surprised to see an emphasis on investments in resource efficiency.  We continue to look for opportunities to increase adoption of the traditional 3Rs: Reduce, ReUse and ReCycle, as well as focusing on the collective behaviors of Collaborative Consumption and the Share Economy.

One area that we’re paying increased attention to 2012 are opportunities at the intersection of Big Data and Sustainability.  This trend is driven by the growth in ubiquitous connectivity, low cost cloud-based storage and computation, and an industry recognition that businesses providing data-enabled resource efficiency are both capital efficient and rapidly scalable.  This sector is often referred to as Green IT.  I prefer the description of Spring Ventures founder, Sunil Paul, who calls this sector the CleanWeb: “a category of clean technology that leverages the capability of the Internet, social media and mobile technologies to address resource constraints.”  Irrespective of it’s name, in 2012 we expect to see businesses harnessing the power of cloud storage and computation to address resource constraints in sectors as diverse as energy, materials, food, water, and transportation – just to name a few.

We’ve already made a great start to building a portfolio in this sector with companies like EnergyHub, Gazelle, GoodGuide, Recyclebank and WaterSmart.  We look forward to adding several more in 2012.  It’s going to be a busy year!

If you think we’ve missed an exciting sector or business model within sustainability, let us know where you think are the opportunities for highest impact.

Sustainable Reading Rules

This is my catch-up reading week.  Before I can get to The Economist’s “World in 2012″ I have a dozen 2011 editions still to read.  I also have a stack of books on my wish list to polish off before I can start 2012 informed and ready to go.

This year I bought an iPad and a Kindle, so I have a least 4 options for accessing all this content; buy the e-book, order on Amazon, drive to Barnes and Noble, or borrow from the library.  I wondered if there is a meaningful sustainability impact between each of these options so I did some research to establish my own best practices.  Here are my sustainable reading rules for this holiday season.

Option 1
If your desired book/magazine is available at your local library then this is by far the most sustainable option.  One caveat – if you have to drive more than a few miles to the library then the sustainability benefit is lost due to emissions from your car.

Option 2
If you already own an iPad or Kindle, then the impact of buying the e-version of a book, magazine or newspaper is much lower than the impact of the paper version you could order from Amazon or buy at Barnes and Noble.

Research published in the Guardian estimates the CO2e emissions of a newspaper or magazine range from 4-10 lbs, depending on the type of paper stock, whether it’s recycled or land filled, the energy efficiency of the paper mill, and the transportation distance.  Similarly, the average CO2e emissions of a paper book are 9 lbs, according to the Green Press Initiative.

To incentivize readers to make this switch to more sustainable reading, one of our portfolio companies, Recyclebank, recently partnered with Barnes and Noble to provide reward points for switching to e-books.

Option 3
If you don’t already own an e-reader, then you might be able to justify buying one for reading books/magazines more sustainably, but this depends on how many books/magazines you will read on it.  So how many books/magazines does it take to offset the emissions of an iPad or Kindle and allow you to play Angry Birds free from carbon guilt?

Apple has published a detailed environmental analysis of the impact of the iPad and iPad2.    They estimate the life cycle CO2 emissions of these devices to be 286 and 231 lbs, respectively.  This is broken down in the figure below.

Source of iPad2 Carbon Emissions

Comparing these emissions with the impact of paper books suggests that buying 20-30 e-books instead of paper books will offset the emissions from producing, shipping and using an iPad.  In a 2010 New York Times opinion piece Daniel Goleman and Gregory Norris argue that when other factors such as health and societal impact are considered, one probably needs to offset 50-100 paper books with e-books to fully balance the impact of an iPad.  If you also switch to receiving your newspapers electronically, the offset will happen much quicker.  Substituting a daily delivered broadsheet for e-newspapers offsets the emissions of an iPad within a few months.

Unfortunately, the equivalent data for Kindle devices is not available.  During its 2011 annual shareholder meeting, Amazon rejected a measure proposed by Calvert Asset Management for more disclosure on how the company deals with climate change.  Amazon claimed that preparing a climate-change report would not be “an efficient use of time and resources.”  For a company with $34B in sales to claim that it doesn’t have the resources to conduct a $100,000 LCA of its products isn’t credible and I suspect we’ll see some CO2e numbers from Amazon in 2012.

If you decide to buy a Kindle/iPad for reading e-books, magazines and newspapers, make sure to maximize its useful life.   If you want to upgrade to the iPad3, Kindle Fire, or next Nook, that’s fine, but make sure to trade in your old device so someone else can continue reading e-books on the device.  At Physic Ventures, we’re delighted to see another of our portfolio companies, Gazelle.com, experiencing fantastic growth providing exactly this type of consumer electronics recommerce service.  Another sustainable, and cheaper, alternative is to buy a used device on Gazelle’s store.

Option 4
If you decide to stick with paper books, check out some of the great new collaborative consumption companies, like swap.com, that provide access to a wide range of used books.

Inspiring Sustainable Living

Unilever is a strategic Limited Partner in the current Physic Ventures fund.  We invest capital on behalf of our strategic partners and work with them to add growth resources to our portfolio companies.  Unilever is a global consumer products company with over $60 billion in annual revenues from food, beverage, home and personal care brands that are used by more than 2 billion consumers every day in over 180 countries.  Unilever is also a global leader in sustainability.  Last year Unilever published its ambitious Sustainable Living Plan which aims to double Unilever’s revenues by 2020 while simultaneously halving its environmental impact.

This Sustainable Living Plan has two components.  The first is to make each product more sustainable by greening supply chains, manufacturing processes and distribution networks.  The second goal is to reduce the environmental impact of consumers using Unilever’s products.  For a consumer goods company, it is this consumer usage which has the greatest environmental impact.  For example, the carbon emissions and water usage from taking a shower with Dove shampoo or doing laundry with Persil detergent are far greater than the environmental impact of manufacturing those products.

Changing the way consumers select and use products turns out to be more challenging than greening the production of those products, so Unilever has been doing a lot of research into this consumer behavior.  This week Unilever released a new report on how Unilever plans to inspire its consumers to adopt more sustainable practices while using its products. They have identified 5 keys to inspiring sustainability: make sustainability habitual, provide consumers with sustainability information, make sustainability rewarding, make it desirable, and make it easy.  Here’s a short video summarizing Unilever’s approach:

At Physic Ventures, we have developed a Network Innovation model that uses the insights developed by our strategic partners to inform our investment practice.  We provide reciprocal insights to our strategic partners by sharing the technologies, services, and business models in which we are evaluating an investment.  Once Physic has invested in a company, we work to facilitate partnerships with our strategic partners, like Unilever, to accelerate the growth of that portfolio company and help our strategic partners achieve their growth and sustainability goals.  Unilever’s recent report on how to Inspire Sustainable Living provides two great examples of how this Network Innovation Model works.

In 2009, Physic invested in GoodGuide, the leading source of information on how the health, environmental and social performance of products aligns with consumers’ preferences and values.  GoodGuide is delivering on Unilever’s finding that consumers make more sustainable choices when they understand the sustainability benefits of the products they are choosing.  GoodGuide is also helping CPG companies understand which sustainability values are the most important to consumers.

Another Physic investment that was influenced by our discussions with Unilever’s sustainability team was our investment in Recyclebank.  Earlier this year, we identified Recyclebank as the leading company providing consumer rewards for taking a broad range of every day green actions. This approach perfectly aligns with Unilever’s finding that rewarding sustainable choices helps reinforce those behaviors.  Since completing our investment in Recyclebank, Physic was delighted to help facilitate a partnership between Recyclebank and Unilever based on Recyclebank’s rewards service.

In addition to these two examples of Physic portfolio companies that are now working with Unilever, Physic has recently made a number of other sustainability investments where our investment thesis was based on similar themes to Unilever’s plan to Inspire Sustainable Living.  For example, our investments in companies such as EnergyHubGazelle, and WaterSmart all align with the themes of making sustainability habitual, desirable, easy, and rewarding.  As I have discussed in previous posts, we believe these are enduring themes that can harness the technology of social connectivity, mobile access to information and collaborative consumption to help us all adopt more sustainable lifestyles.

EnergyHub: The arrival of Home Energy Management

One of the perks of investing in early stage technology companies is that I get to participate in the beta launches of their cool new products. One product that I’ve been eagerly waiting to try is the new Home Base and Energy Management system from our portfolio company, EnergyHub.  EnergyHub describes the Home Base as “Command central for energy saving”  and promises that “watching your energy costs shrink can be addictive.”  Here’s a video describing how the HomeBase system works.

I would be the first to admit that I’m a card carrying “early adopter”, “gadget guy”, “data nerd”, and “cheapskate”, so this product was clearly designed for me.  However, I wasn’t expecting to find the EnergyHub system quite so engaging.

My Setup

I setup my home with the standard EnergyHub starter kit.  I have a Home Base sitting on the kitchen counter.  This connects via the EnergyHub ZigBee wireless mesh to power strips and sockets.  I used one power strip for my TV/DVR/Blu-Ray/Soundbar in the living room and another power strip for my PC/Monitor/Speakers/Printer in my study.  I also replaced my 10 year old, incomprehensible programmable thermostat with the EnergyHub ZigBee wireless thermostat.  The Home Base is also connected to my home WiFi network so that I can monitor and control all my connected appliances and thermostat through the EnergyHub MyHub web portal and iPhone app.  The Home Base would also connect to a Smart Meter, but mine isn’t scheduled to be installed until next year.

Initial Impressions

I’ve been using this EnergyHub system for about a week and here are some of my initial impressions.

I didn’t understand the energy usage of my appliances

My 50″ plasma TV is rated at 400W, I have a 400W power supply in my PC, and my soundbar claims to produce 250W of power, so I naively thought these devices might all use about the same amount of energy. Also, my DVR has a “power” button which I assumed would reduce its power consumption when I wasn’t watching TV or recording a show, so I didn’t expect it to use too much power. As you can see from the chart below, taken from my EnergyHub web portal, the ratings of these appliances have little correlation with how much energy they actually consume during normal usage.

My TV does indeed draw around 300W while it’s on, but I only watch TV for around an hour a day, so that’s not actually that much energy. In contrast, my PC uses about 60W, but I leave it on 24/7. Over the last few days that has made this PC the biggest power hog in the house. Now that I’ve realized this simple fact, I took action.  I installed this SetPower application, which is essentially “EnergyHub for your PC”, that enables simple scheduling of sleep modes.

We need to do something about these DVR and set-top boxes

The other immediate lesson for me, is that the power consumption of my DVR is astounding. It consumes 50W all the time. The “power” button is a joke.  Turning the DVR “off” makes no difference to its energy consumption.  In case you’re interested, I have the Motorola HD DVR.  In fact, I’m embarrassed to say that I actually have two of these behemoths, so that I can watch HD recordings in my bedroom as well.  I had read a little about the energy used by DVRs and set-top boxes, but it was only after seeing my own data that I read this article from the NRDC which estimates that in 2010 the 160 million set-top boxes in the US used $3B of electricity – more than the entire state of Maryland.  I have been a cord-cutter-wannabe for several years.  Now that my EnergyHub system has informed me that I’m spending an additional $200 a year to power my DVRs it might just be time to switch to the Netflix app on my TV.  The power switch on that actually works!

Smart Design did a great job

The Home Base was designed by New York design firm, Smart Design.  In this Fast Company article the designers describe how they came up with the consumer-centric design.  A key design element of the Home Base is three illuminated buttons on the top of the HomeBase which switch between the three operating modes, “At Home”, “Away”, and “Goodnight”.  It feels completely natural to “put my home to sleep” when I go to bed.  Similarly, when I go out and set the alarm, it’s also feels natural to set my home into “Away” model.  All the appliances and thermostats attached to the EnergyHub system come pre-configured to turn on/off in the different modes.  I get great satisfaction from hitting the “Goodnight” mode button and knowing that the vampire loads from my soundbar, printer, monitors, TVs etc etc etc all turn off at the click of just one button.

It’s information-enabled behavior change

The Home Base system has lots of state-of-the-art technology, ranging from ZigBee wireless mesh networks, to the latest embedded ARM processors running Android, to cloud-based mobile apps.  However, the impact of the Home Base system on my electricity bill comes from the elegant way that this technology provides me with actionable information to change the way I use electricity and how simple EnergyHub makes this behavior change.  I could have installed SetPower on my PC without having an EnergyHub system, but I didn’t realize what an issue PC energy consumption was until I saw it on EnergyHub.  Similarly, I could go around and unplug all my vampire loads every time I got to bed or leave the house, but it’s so much easier just to hit the “Away” button on the Home Base.

For those of you who have read some of my other postings, the concept of information-enabled behavior change runs through many of the investments in Physic Venture’s Sustainable Living portfolio. GoodGuide do a great job providing consumers with information on the impact of the products they buy. WaterSmart are now piloting their equivalent of the EnergyHub solution for reducing water consumption – look out for my posting on that system once I talk my way into one of their pilots.

Finally, for those who still subscribe to the Dick Cheney perspective that energy efficiency is a personal virtue, not part of the solution to our energy problems, I want to point out that my usage of EnergyHub is not particularly virtuous, in fact it’s rather fun.  Also, I estimate that the small changes I’ve made since installing EnergyHub have reduced my consumption by 25%.  Not a bad start to addressing the energy problem!

I look forward to hearing from other HomeBase users on what they’ve discovered about their energy usage and how the EnergyHub system is changing their behavior.