Opower, which uses behavioral science and software to nudge consumers into cutting their electricity use, pulled off an IPO on Friday by raising around $116 million and demonstrated a rare public market exit for green tech startups.
The shares of the Virginia company rose about 4% to $23.37 per share soon after its debut on the New York Stock Exchange. Opower priced its shares at $19, the high end of the range.
“The big focus for the company in the coming year is international expansion and a continual investment in our core products,” said Dan Yates, CEO, in an interview. “We are just at the very beginning of an exciting time when utilities are saying, ‘This clean tech thing isn’t going away, so how can we work together to make money.’”
The company, which charges subscription fees, had lined up 93 utility customers in eight countries, including 27 in the United States, by the end of 2013. The utility customers include Pacific Gas Electric in California, Tokyo Electric Power Tokyo Electric Power in Japan and E.ON E.ON in the United Kingdom.
Opower’s ability to line up utility customers and to deliver results has made it a standout among startups — and large companies in some cases — that have attempted to use a combination of electricity consumption data, competition, energy saving tips and even rewards to nudge consumers into using less energy. Some of these companies tried to sell their products, which sometimes included not just data analytics but also display devices to show energy use and the dollars spent, either directly to consumers to through utilities.
Google, Microsoft and Cisco all tried and abandoned their efforts a few years back because they couldn’t get enough consumers to care. Also, many of those display devices were just too expensive, costing several hundred dollars at retail stores.
Getting people to pay attention to their energy use and do something about it — especially over time — is a difficult challenge. It’s not just about developing a cool gadget, crunching big data and believing that consumers will care just because it’s cool to look at a bunch of numbers on a sleek device. Research also has shown that saving money isn’t necessary the biggest motivation for consumers or the best way to create lasting behavioral change.
Opower, founded in 2007, has developed software to crunch each household’s electricity consumption data and shows how each home’s energy use stacks against its neighbors in the most recent billing period and over time. Its utility customers send that information, along with energy-saving tips, to its customers by regular mail or through an online portal. The software company’s services have proven to deliver around 2.5% energy savings per household.
Some of its utility customers also use Opower’s software for their demand-response programs, in which homeowners agree to reduce their energy use during hours of peak demand in exchange for credits on their bills.
Opower hopes not only to sign up more utility customers but to also expand its reach within its existing utility customers, many of whom aren’t using Opower’s service for all the homes they serve. In fact, those existing customers on average are providing Opower’s data analytics to about 10% of their residential customers, Opower said. Some utilities also use Opower’s services for their small business customers.
The company posted $14.2 million in losses on $88.7 million in revenue in 2013, compared with $12.3 million in losses and $51.8 million in revenue in 2012.
Opower joins a very small group of venture-backed companies that in recent years were able to go public or find buyers willing to pay a good sum for them. Earlier this year, Google announced its purchase of Nest, a smart thermostat developer, for $3.2 billion. SolarCity, a residential solar energy company, went public in December 2012. Tesla Motors did an IPO in 2010.
Many more venture-back green tech startups, such as those developing novel solar cells, biofuels and batteries for electric cars and grid energy storage, have struggled to get their technologies to the market or stay competitive. Some venerable Silicon Valley venture capital firms have pulled back their investments in green tech in the last few years after they pumped billions of dollars into a variety of green tech startups starting around the mid-2000s.
Opower’s IPO may draw more interest in green tech companies from investors in the public market. Yates, for one, believes the time has arrived when green tech will start to make a big enough impact in the energy market to shed its persona as a niche business.
“We are through this disillusionment after the enormous high curves in 2006 and 2007,” Yates said. “We are entering an era of many mainstream green tech companies.”