“So that's how we got here... we were focused on enabling this massive energy retrofit opportunity or enabling people to implement this zero costs down energy savings. But then I realized there's no point if buildings don't have the infrastructure in place for that.”
The Nexus podcast (Apple | Spotify | YouTube | Other apps) is our chance to explore and learn with the brightest in our industry—together. The project is directly funded by listeners like you who have joined the Nexus Pro membership community.
You can join Nexus Pro to get a weekly-ish deep dive, access to the Nexus Vendor Landscape, and invites to exclusive events with a community of smart buildings nerds.
Episode 54 is a conversation with Ben Birnbaum, Partner at Keyframe Capital.
This is a fascinating look inside the mind of a technology investor who has invested in several past Nexus Podcast guests, including PassiveLogic, Aquicore, and Buildings IOT.
We talked about what brought Ben into the building technology space, why he's here to stay, even though he's learned about all the barriers and what it takes to succeed as a founder in our space.
Without further ado, please enjoy Nexus Podcast Episode 54.
Mentions and Links
- Keyframe Capital (0:56)
- PassiveLogic (1:06)
- Aquicore (1:07)
- Buildings IOT (1:08)
- MV Transportation (3:59)
- Rivian Automotive (11:18)
- TeraWatt Infrastructure (21:56)
- Wunder Capital (25:55)
- Aquicore (32:15)
- Turntide (32:38)
- Data Interoperability (33:56)
- Episode #005: Troy Harvey of Passive Logic (35:46)
- Episode #018: Logan Soya of Aquicore (35:49)
- Episode #034: Brian Turner of Buildings IOT (35:52)
You can find Ben Birnbaum on LinkedIn.
- Why Ben is a superconnector (14:27)
- Ben's 3 "Holy Grails" or massive opportunities: Project/Asset Financing, No CapEx Solutions, and Fixing Controls (26:24)
- Why now is the time for this industry to transform (43:24)
- Ben's advice to startups in our space (52:18)
Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
James Dice: [00:00:03] hello friends, welcome to the nexus podcast. I'm your host James dice each week. I fire questions that the leaders of the smart buildings industry to try to figure out where we're headed and how we can get there faster without all the marketing fluff. I'm pushing my learning to the limit. And I'm so glad to have you here following along.
This episode of the podcast is brought to you by nexus pro nexus pro is an annual or monthly subscription where members get exclusive writing podcasts and invites to members only zoom gatherings. You can find info on how to join and support the Without further ado, please enjoy this episode, the nexus podcast.
Episode 54 is a conversation with Ben Birnbaum, partner at Keyframe Capital. This is a fascinating look inside the mind of a technology investor who's invested in several past Nexus Podcast guests, including Passive Logic, article core and buildings, IOT. We talked about what brought Ben into the building technology space, why he's here to stay, even though he's learned about all the barriers, and what it takes to succeed as a founder in our space.
Without further ado, please enjoy it. Next is podcast episode 54.
Ben, welcome to the show. Can you introduce yourself?
Ben Birnbaum: [00:01:25] Hey James, thanks for having me on I'm Ben Birnbaum. I'm a partner at Keyframe capital.
Cool. Yeah, we've got a lot to unpack today. Can you start by giving us a little bit about your background? How'd
you get here? How did it get to the show?
Or how did it get to a Keyframe?
Like how'd your commute to the office today, but like, how'd you get to working in this space, maybe start by educational background, that type of
thing. That's too far to go back. And. How I got to this show is to, for, to go.
Cause I got, a little worked up about building controls which took me down an internet rabbit hole. And you were the only person I could find on the internet who was saying, or doing anything about it? Like a year ago. you kind of are still like one of the few who still are, and that's how I got to the show.
But a little bit about my my, my background. I, so I started my career working in a totally different space in in education actually always in corporate jobs, I've always been a. Obsessed with with like how disruptive technology can be to legacy industry.
And I started my career at McGraw Hill education focused on the change there was, the growth of Amazon and the digitalization of education, which you're super familiar with as someone who runs an online course now. But it was, there's a bunch of big textbook companies and.
So my first job was working in corporate strategy as this big education company was 125 year old company. So I've always been sort of focused on big incumbents in industries was being transformed from what it had been a big textbook publisher to needing to become digital and facing this existential threat of Amazon.
And just all the breadth of corporate strategy work that I won't necessarily unpack because I don't know that it's that relevant for today's topic, but that was like what the beginning of my career was which was super exciting and interesting. And but it, wasn't where I was.
Decide, had decided to spend my career. And I was looking for a similar experience in a different industry. And and then I, and I moved to a company with similar on paper characteristics called MV transportation. That was similarly incumbent and it uh, round a couple of billion dollars in revenue uh, a a big private company it's a transportation operator and.
The businesses for folks who are on this podcast, who probably aren't familiar like most of the public transportation it's outsourced so the bus in whatever city you're in or the paratransit service, or if you live by water, a ferry or the rail crew or commuter services, or all of that is outsourced into 10 to 30 year contracts to large contractors that bring all of the technology, all of the cap, ex all the labor, the, insurance, the, everything into a giant package and sign a long-term contract.
They're like big public processes. They're not that different from the kinds of building service contracts that people sign for. Long-term. HVAC maintenance and stuff like that. Or, an ESCO contract might be more of a comp. But anyways, so I was looking for something that was similar.
And, but in, in a totally new space so that I could get incumbent strategy experience in a space that would have had a new existential threat. And it was 20, it was around 2015, 2016 when I was looking for that. And that was like the rise of Uber and the company that I joined had the biggest paratransit business in the U S and people were asking people were asking them is your business going to disappear?
Because Uber exists. And it was honestly, it's a pretty valid question. So that, that's basically what I joined to work on was, for the biggest paratransit business in the U S I joined us as the head of strategy what are we going to do about this? What actually the company did about it is now, like, when you order, I don't know if I should say some podcasts, but they want that, that battle there, they're doing just fine.
And but so I worked for a couple of, I've worked for a couple of years on figuring out how to like, maintain incumbency position there. But what I didn't really anticipate was, yeah. I joined like a big old company just with an interest in how technology was disrupting the market structure.
What I could never have anticipated was transportation was going to become so cool. And, like I joined in 2016, there was no like autonomous driving companies then and Yeah, sure. Tesla was a company, but like every single vehicle in the world wasn't going to be electric.
And there wasn't like a war between line verse, bird on every corner in the country and like connected infrastructure and just it became this space while I was there while I was of strategy that that. There was just like, Oh, crazy rush of venture capital and of of auto OEMs trying to evolve themselves and of all kinds of strategics and wanting to do really new and interesting things.
And I had joined this company that was like really supposed to be, it was supposed to be very boring. And it turned out to be like, so not boring. And and that, that sort of it put it, put me in a position where I was I worked on a very specific problem. And then that morphed into so we had this contract layer that I described the cities and that morphed into we were like, when you, when a city hires you to do transit, that means you're the city's representative to get people safely and efficiently around, around the city.
And fulfill transit means fulfilling things like like equity for the city and access and accessibility and stuff like that. And that contract layer means you owe the city, those things over a 30 year period. You basically like you represent those values for the city, like between the city and the private sector and everyone who you source into those contracts, for decades.
And so if there's innovation in a city that means that the mayor's office and the department of transportation and the budget office, and everybody looks to you and they say, okay if there's an autonomous driving company in our city, like how, or you going to ensure that there's accessibility, there's access, there's safety, there's sustainability.
Like, how are you going to ensure that those things are happening in our city for the next three decades? And then are you, how are you going to do it and how are we going to pay for it, all these like crazy complicated issues. And so it just, it became like, it just, it was such a blessing. It was like, I just got so lucky that I was out, I was not out looking for that, but it just came like, it just became, you know, technology is it's everywhere.
It's like changing every space like that. But I was in a position where. Just so much technology was flying everywhere all at the same time. And so I just, and I don't know if I mentioned this they operate over 200 and like around 250 contracts in the U S so like basically every major city in the U S and so I was like, sometimes I was in four cities a week in a different deity.
And just meeting with folks and hearing like, what are your goals? And then I was, and then I would go from hearing the city's goals to going to some tech company's office and just ping back and forth between the two. And so I got this super, unique perspective on. What is the, why does the public sector operate in the way that it does?
And how does it go about engaging with with innovation and in, in a way at a time period where other people were just trying to, you know, not necessarily respect the, value of like the transit values that I described. Anyways, that was my background but, when I, when I started to it was, there was so much breath that, of technology that when I started to understand the kind of infrastructure development That was going to go, that was going to need to happen to achieve, the like infrastructure development goals across all types of municipalities, urban, suburban, and rural just in transportation alone.
But especially when you looked at vehicle electrification like how that links to energy. Even before I knew about the things that need to happen in buildings is like way before I knew anything about like building controls, HVAC and stuff like that. It just became apparent that there was companies like mine were going to need a new kinds of finance.
And that's what led me to where I am now. That's when I basically I linked up with A couple of folks who are now partners of mine, a Keyframe one who was in a very similar position to mind at Rivian Automotive who wasn't then, but it's now a giant Eby company. And another who was a career investor and operator in energy and transportation who was, was seeing this change in infrastructure.
And was we were, we didn't exactly plan on starting an investment firm at the time. But we were all just something something's going to happen here and we should do something and here we are. So that
capital. That became a couple of things All
right. And at what point, so one of the things that you and I met like a year ago, whenever you searched on Google for people that talk about filling controls whenever that was you and I met, and since then, I've learned that you are quite the connector. Like you, you know, everyone, and you're always connecting me with other people.
And so I'm wondering at what point, how did you learn to do that and why do you do that?
How did I learn to do that? And why did I do that? I'll
say thank you first, because it's awesome. And so say it in a, an appraising way. How can other people learn to be like
you? I liked the way that you phrased it before, because I'm not sure that anyone should be necessarily aspiring for the way that you phrased it the second time.
But people can definitely be learning to, to, to network which I do spend a lot of time on and while you're thanking me, I'll thank you for, deciding, with with limited plan, really to just start and the sleep blogging and interviewing CEOs and add starting a community focused on building controls because about it, I'm not really sure it would have been possible to figure out how to start investing in this space.
Cause there's not really. That much high quality information on the space out there, especially on the, especially on the real problems with the space. Sorry, the questions were why and how did I learn? And how, w what should others do? I'm re I'm reframing your questions into ones that I feel like I can answer.
Okay. And people may learn a bit more like you.
First of all I'm a generalist as a person I did, you asked my, started me to start my education, which I did it, but I like, I have a, you're an engineer.
I don't normally say this out loud and we're on a recorded thing, but I'm at, I have an accounting degree. I have a good reason for it, but I won't bore everyone with it. I've never worked as an accountant, just, while we're getting things on the record. But I'm a generalist. And one reason why is there's just no way I could have good conversations with specialists I learned from them. that's one reason why the second is I think more jet, more in a broader sense than that.
Careers are so complicated and but they and people are complicated. And it's we tell ourselves a lot of a lot of complicated stories when we're alone by ourselves. And things that don't make sense. But experience is just so insanely valuable and most people are really excited to share their experience with others.
It's pretty fulfilling to share your experience with others and almost no one gets asked to share their experience with others. If you take a look at like almost anybody's career, most people only have especially in the first like decade of their career, two or three really high leverage moments that make a difference for the trajectory of their career.
So figuring out how you can learn from the experiences that other people have had and lean into the right high leverage moments can just completely change the arc of your life. And I have no idea when I learned that but since I learned that I have become an absolute addict of learning, exactly when those moments were for other people.
And honestly, not even just for like successful people in their career, but like happy people. Just where did that happen for you? You don't switch jobs often, you don't move many times, you only make a couple of big decisions in your life. And if you boil it down to a decade which is like the amount of time that I've been working. So anyway, it's I've just become like a total addict. The lessons that I have are like,
I only connect with people on LinkedIn who I would expect if I ask them to connect with someone else. If I ask them to that's where my bar is. And and then I offer that up to anyone that I connect with. So if I am talking to a college senior, and they're a high quality person I can say to them, look through my LinkedIn.
And if there's anyone you want to meet, no ask is too high or too many, almost no one takes me up on that. But for the people that do and they want to meet some CEO, I actually know that person. And most of the time that works out that's probably my number one lesson for me is that's where I keep my bar.
The others are just normal human being stuff. I try to act, listen and learn because that really benefits me. And I try to connect people with like as much selflessness as possible. Yep. I think you probably don't give yourself enough credit here though. Cause like you started at giant community in a space that doesn't have a community.
And so yeah, probably
also different LinkedIn philosophy. I connect with anyone so that they will see my posts.
I want them to see my writing and hear the podcast more than I care about maintaining quality network.
Is that positively impacting your stats?
Oh, absolutely. Yeah. People hear the podcast and they're not necessarily reading my writing yet, but they'll come to LinkedIn to connect. And then the next Tuesday, when I write an essay, they'll get a notification because we're now connected.
They'll see my writing. You're more likely to join the community from
there. So I get it. You just, you don't have the time to personally have a conversation with each of them. Nope. But you could have the time to like
automatically send them a note or something like that. Yeah. I
have a offline database of people that I meet with and connect with and that's where I do my connecting. Rather than on LinkedIn.
Yeah. I was thinking about this the other day. I feel like I don't feel nice about this, but I've probably rejected like five times as many LinkedIn invites as I've, as I have accepted.
It backfires on me because I accept every invite, but then someone will send me a message right after that. And I'm just like, I don't have time to respond to five messages a day. So that I'm like being an asshole
at the same time. Yeah. It probably, it serves a purpose for you, but you could never then use your LinkedIn network.
Like no, How I use mine, which is, these are just actually people I know. And you're just like, these are followers that I have, yeah.
Social media is a tool. How are you going to
use it? When you get a real job, if you ever get a real job, you'll just need to start fresh again. I
guess I'll just delete it and start over.
But I'm pretty reliable at this point. So before we go,
you're a slave, you're a slave to the nexus community. Yes. Yes
I am at everyone's service. No one's service individually. Before we get into buildings. Yes.
Dance dies has become nexus. Yeah.
Yes, I have. You had an announcement last week about a new startup.
That you founded, which I didn't even know about you guys were in stealth mode. Can you talk about it? Can you tell us
about yeah, sure. It's actually an old startup. But that we founded that was in stealth mode for three years since the beginning of 2018. I'll speak about it briefly since it's a different space, but it's it is a a infrastructure company that develops, owns, sorry operates and finances, electric transportation infrastructure.
Super briefly as inspired by the career story that I told I left the last company that I was at with the with the. View that the vehicles were all electrifying and there's, as probably resonates with a lot of, with a lot of folks who this moves podcasts, if you if you plug every vehicle in at say like a logistics hub if it's electric you we'll have sorta like peak load similar to, a skyscraper and the, those sites.
But in addition to logistics hub that's true for anywhere we're concentrated. Electric vehicle charging is going to happen. So I'm not talking about fast charging sites, like a Tesla supercharger or something like that. I'm talking about. I municipal transit hub a fleet of Uber's the post office, a FedEx facility, things like this.
But, we have in every municipality all around the country, there are thousands of these locations trucks, stops, stuff like that. You do that. You have a peak load that is similar to a skyscraper and these locations were not cited for that kind of load.
And in the U S alone folks say estimate between one to $2 trillion of additional infrastructure development. And there aren't really there aren't. Specialized asset owners for that. And so this is the company that we've been building is a specialized asset owner for that.
We've been for the past couple of years acquiring property adjacent to these kinds of sites, as well as building the kinds of capabilities that a company like that will need. And the announcement that we made is we recently brought on as CEO a woman named Nao Palmer who was previously the the C the the head of energy for Google who she took Google from from eight.
Data centers too, the jug or not of an energy footprint that they are today, as well as as well as being a net zero emissions. So she kinda, I'm sure many people who listen to your podcasts are very familiar with the energy hog that data centers are. But that asset classes is actually, it's super similar in giant load characteristics in a new place.
And so that I'll let that analogy complete itself. Yeah, but that's the company. And so we're excited to have it finally something that we are not only talking privately about for the past three and a half years. Cool. That's really exciting. And then somewhere along the way, we we're a little nuts and.
Apparently don't like to sleep so somewhere along the way, we also started to fund.
Okay. So same people that you started Keyframe with. You also started terawatt with, and in the meantime, you just decided to start a fund.
James Dice: [00:21:52] That's very ambitious.
Ben Birnbaum: [00:21:55] So much of getting Terawatt off the ground was a creativity and a realization of the need for like asset financing and capital across the structure for physical infrastructure businesses of which everything in HVAC and controls, is out in the physical world. So getting the business off the ground, the things that I described, a lot of that is about capital structuring. And so we were so focused on the capital structure side of getting the business off the ground.
We were just very engaged with the market all along the way and pretty frustrated by what we were seeing as the failures, frankly, of capital markets in support of physical infrastructure companies. On one end of the barbell, you have the very blunt instrument of venture capital that is good in the spaces that it's good. Like, SAS companies or consumer companies that have a very specific margin profile and in the spaces where it's not good, where businesses might have services or assets or something like that, so many businesses in the built environment like this, but businesses go to venture capital firms and say I am an innovator.
I am a startup. You're the person I'm supposed to go to, to raise capital from and they are told you don't fit my criteria. So instead of just building their business to meet their market and their customer requirements, they try to change their business to meet investor requirements.
And sometimes that's good. Like in the case of you're a SAS company, yeah, there's a reason why venture capitalists have those requirements for SAS companies. But like, if you are not, and you are a different kind of company because you operate in the physical infrastructure category, making sacrifices in your business model or sacrifices to your customer value just to meet the check boxes of capital markets is a failure that we couldn't let it go.
That's how we ended up starting a fund and probably how we'll ended up doing everything we end up doing. We were very capital oriented in getting the Terawatt business off the ground because it's a capital oriented business and then we were like, businesses across all of physical infrastructure experience this need for more of a customer orientation.
And we felt like we should try to do something about it. So we built Keyframe as a fund that actually has the flexibility to be able to invest both in like normal venture capital stuff, which we do, as well as on and off balance sheet equity and debt.
We just, we listened to businesses more about what is the optimal capital structure for them that we can, like growth stage businesses, what's the optimal capital structure for them? And we can do things like project finance for earlier stage businesses because we have the flexibility that we have versus just you didn't meet the preset criteria that I have.
So like change or leave, And that actually is a bit on the other end of the barbell that is available to later stage companies. That's available from Goldman Sachs when you're, ready to go when you're a big company, but when you're a small company, you don't get to walk into Goldman Sachs and be like, bring me all of your tools and do something custom for me.
They don't care.
James Dice: [00:25:19] Totally. So then when you guys decided, Hey, we're going to invest across the entire infrastructure stack or all these different verticals, you're the one that drew the straw for buildings, or how did that work?
Ben Birnbaum: [00:25:30] Yeah, that's a great question. It was a complete accident I'm pretty sure I still regret it.
I don't know. It's a fascinating space. It's still a, it's still a market. You can't even, it's still a market that I can't name. You can't even name it. No one could really name it. I used to call it energy efficiency. It's not right. Cause it's it's really, there's operational efficiency is 10 times larger than energy efficiency.
So we had invested in this company called Wunder Capital. And we'd worked there a FinTech company and your neck of the woods in commercial solar. So they do very short story, financial products and solar are weird and they require FinTech. That's the shortest. I can tell that story.
And so we worked with them on an equity investment and a debt investment Google-able if anyone's interested. uh, so there are companies that work in the built environment that do something similar for energy efficiency.
And so we thought, oh that's easy. Let's do that again, what we just did in the commercial solar space, but in the commercial building space for energy efficiency. If anyone's listening and you do this, I want to meet you if I haven't met you. But there's going to be 100 more companies that do this. Everyone knows we haven't tapped this yet. And I'll explain why we haven't tapped this yet and it's why I'm still here. We were like, okay, so you know, it's going to be easy, but then you find out, you get on the FinTech side of things, the commercial real estate market is so large, but it's also the depth and fragmentation of the market is hard. And it's not just because of the customer type being corporates and whatever else, like you can underwrite those things. All of the various types of contractors all the way through are weird and multifaceted and fragmented and in every type of building system that touches operational efficiency, HVAC controls, energy, and all the other major food groups of building systems, you have different types of general and mechanical contractors and then specialized contractors, which is obviously not stuff that I do at the time, but stuff that I know now. Anyways, so we had started there and we were like, Oh, we'll just do that thing. And then, we started digging deeper on just like solutions that we were really focused on asset financing of energy efficiency related projects.
Which I still think is one element of Holy grail opportunity. The other to me, is like non-CapEx energy reduction solutions. And so you have a bunch of those out there as well. But how I got specifically to HVAC controls is we were very much looking for, Okay,
so there's this big energy opportunity. Like buildings are something like 40% of the emissions footprint, and there's all these reasons why people are excited for that to go down and operational savings and, a good payback of lowering that.
And so if you could just implement a solution that lowers that, clearly, obviously it makes sense to implement that solution. And so we started looking at all the solutions that you could do that with and I started understanding why none of those solutions have grown. And there have been many of those solutions that have had really great technology to be able to identify how you would go about making a building more energy efficient with software, if it's controls, we're capable of doing so. That is when I basically found, your website. And that's around the time also when I met Troy Harvey from Passive Logic, but that's when I came across the fact that black box solutions, algorithms for lowering energy efficiency, tenant, comfort stuff, anything related to machine learning or AI in buildings, you name it, basically all of it's a lie, unless building controls are fixed, which I believe that is possible and I believe, obviously we're invested behind it, I haven't really spoken about our investments, but that to me is the other sort of Holy Grail. So that's how we got here is like we were focused on the flexibility of our firm is going to enable this massive retrofit opportunity or it might enable people to implement this like zero costs down energy savings. But then I realized there's no point if buildings don't have the infrastructure in place for that. Now I've been cursed with knowing, all of you people and all the things I know about all the companies that put us in this godforsaken situation over the last couple of decades, but I'm hopeful that we're going to get out of it and they'll see their reckoning.
James Dice: [00:30:22] Well I love what you now call it. Like you're using the we term. It's our problem.
Ben Birnbaum: [00:30:27] I'm in, yeah, I'm in, I'm literally and figuratively in,
uh, your, Your guys' investments. You guys have made quite a few investments in a short amount of time. Can you, what
can you share? Yeah for sure. It feels like a long amount of time, but it has been, it's been less than a year.
I'll talk about how we view the landscape. And perhaps because we're investing across the landscape and and the, what we believe to be the market structure of the future So we, I think we're those were like, I pointed out what I think is like the Holy grail, which is there's actually a third element that I'm not aware of, but which is like the two there's two types of opportunities, but I don't, I just don't think we can get there until we have better infrastructure in place in buildings.
So we're kind of being patient and investing in that, that type of infrastructure. So where we are invested so far are in passive logic which is in like a open architecture controller. I feel insufficient to describe that to your listeners.
But we need open architecture and for data to be able to flow in both directions in this space. And without that, we're just, we're not gonna be able to process anything that looks, I don't even know that we really need machine learning or in buildings, but that's a different, that's a different question, but we need to be able to do more than, today's sequential controllers can do for us.
And we certainly, don't, we just, we can't we, aren't going to be able to survive on the amount of. Labor that goes into programming controllers. And so if only we just make them capable of of, being able to be programmed the way that they should be able to be programmed.
Um, We achieve a lot we are investors in Aquicore. They are a fault detection and outlook platform. They're also very focused. I would say their their main focus is on is on workflow tools and reporting to align stakeholders around specific outcomes whether it be projects or reporting And they work with, many large portfolio clients.
I think I'm listing things chronologically here. Turn tide. This is probably example for us of what's possible when you have the ability to to plug and play their their software control motor.
You can they're just like retrofitting motors. lot of rooftop, a lot of building efficiency a lot of rooftop units, but all across building the landscape doing a lot yeah. Of interesting things. But this is, I think, exact example for us of across hardware and components where you make it seamless for the customer base to be able to swap things out without the, all the complexity of the way that, you know, and ASCO my go in and complexify things.
Or I don't want to use the big companies names, but the big companies might go in and complexify things like we're just. We're just saying like for like units that just operate better at a cheaper price. So anyways, this is turn tide technologies and then latest investment buildings, IOT that I think represents two different pieces which I think one is a critical piece of technology.
And the other to me is like one of these, like the third Holy grail type of opportunity. The first is data interoperability. They have an incredibly powerful technology for for data interoperability across a system type. And it's open source. And I, I think that has giant potential to to shift the landscape.
They historically were a, controls contractor. But they, their business model has has shifted to to turnkey contracting for like monitoring and predictive maintenance and ongoing related services.
And to me that is the third sort of Holy grail opportunity that I think. Just changes this space and basically breaks the market open once we have
the quality of controls in place that we need to be able to have high quality data and we have interoperability of that data. Then we can actually start to implement the energy solutions and. Whether they're zero costs, energy solutions or CapEx related energy solutions, those are just different types of the same coin to me.
But what I think is also apparent, it's no one works at a real estate company that, knows what to do with any of the technologies that we're talking about. And so it's not that I believe that a, like the HVAC services companies need to go away. It's just a new kind of complimentary services company also needs to exist.
And one doesn't and so that's the third. Element I don't know why I've started calling them. I've made a lot of biblical references over the past, like 20 minutes, so
I think I threatened some of the big companies with some, they'll have their day of reckoning too.
I apologize to them for that. I haven't, maybe I don't, but
James Dice: [00:35:43] I haven't had turn tide on the show yet, but I've had, you mentioned passive logic, Troy Harvey's episode five, Logan soil off core was episode 18. And then Brian Turner bull anxiety was episode 34. And then we've talked about master systems integrators and that type of services firm on six different podcasts.
So I think you, and I see along the same lines in a lot of different ways here,
Hey guys, just another quick note from our sponsor nexus labs. And then we'll get back to the show. This episode is brought to you by nexus foundations, our introductory course on the smart buildings industry. If you're new to the industry, this course is for you. If you're an industry vet, but want to understand how technology is changing things.
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Ben Birnbaum: [00:36:42] We'll have to check the dates of Our investments to see if uh, they were made before.
James Dice: [00:36:49] Uh, I got to start getting some cuts on some of these deals.
Ben Birnbaum: [00:36:52] You should be demanding. You should be reaching out to the whole investment community. People reach out to me and they're like how much of, where am I supposed to learn about the space? And I'm like, I just send them the link to your podcast.
And I'm like, don't talk to me about this space or ask me questions about it until you've listened to this guy's podcast, because anything I've anything I'd tell you. I'm just going to repeat things that I hear on James' podcast. Yeah. Thank you for show me your show me you're serious by quoting James dice to me.
Um, you know,
James Dice: [00:37:21] Oh, you
are among my number one salespeople. So I appreciate it.
But yeah, I'm the one who should be asking for a commission here,
Selling the free podcast. anyway, so how do you think about, so you mentioned like all the reasons not to invest in this space, right? Incumbents foot in the sun of fragmentation, you've said all those things.
What makes you confident that all that's going to,
it sounds like it goes back several years in your career, several jobs, but what makes you think that all of that is going unwind itself?
Ben Birnbaum: [00:37:57] Yeah. Yeah. the incumbents are agreeing that is going to unwind itself with their actions.
You, you seen Honeywell drop forge and open blues out there. And I don't track everything that the incumbents are doing, but they kinda, Scott have a writing on the wall situation, I think for the incumbents. And so I don't necessarily feel alone and thesis here. I think what I do feel alone in is there, like there are a ton of people who are not really focused on the controls side of the space who really invest in the energy.
Stuff. And I don't think that the controlled solutions and the analytics and the services marketplace and the, retrofitting offers or the utility programs or things like that, or are mature enough necessarily yet to support the kind of scale. So I of the things that I was calling Holy grail before, so I think there, there still might be some I'm I think there still might be some maturity of the, part of the space that we're, that, nexus has really focused on.
Before, before the world can see the kind of results that it's asking for. If you think about. Like the Biden infrastructure bill and what they want might want out of the built environments emissions reductions, like it's cool, but we gotta get, we got to implement new control systems in like lots of buildings before we can start implementing these energy savings programs and stuff like that.
And so I just think anyways, but focusing on controls specifically
James Dice: [00:39:44] yeah, I ditto
for great interactive buildings and a lot of the stuff that's coming out of the lab. Solving controls. We're not going to solve climate change, not solving controls a hundred
Ben Birnbaum: [00:39:53] Yeah. Yeah, exactly.
So same thing is true of demand response, right? Unless we have like grid controls, you're not, and you're not doing that with buildings and doing it in a way that doesn't, screw up all of the underlying building systems.
Maybe you are for some but you're not doing that at like massive scale. And I think there's a little bit of talking past one another there by various stakeholders. But the reason why I think that this is happening now is like specifically now is the sort of the real estate operators I feel have been lied to about the ease of the economic opportunity that has been available to them. For the last, I don't know how long they've been lied to. But they'd been lied to for a period of time and for the last decade or so there has been resistance to giving them their data and that's what this whole open data interoperable data standards thing has been about in my opinion.
And the reason why for gen open blue are things now is because you have a list of analytics companies under site. There you not, your list is not even comprehensive because it probably got boring to keep building a list. There are, I don't know, there, there might be a thousand building analytics companies.
There might be more honestly like globally. There's definitely more. And if Honeywell was there a year, there you go. I said it, if Honeywell was giving, building owners their data, there would not be a thousand building analytics companies, like no way. But they weren't, no one was giving building owners their data but for some reason, a lot of people felt the need.
To start analytics companies to just get data out of buildings and into the hands of building owners. And so because the people that otherwise had that data, weren't doing it and that's been happening for the last decade and every single one of those companies value propositions are based on the fact that data says there are operationally efficient things to do with positive economics in your building.
Every single one some of them also say as good for the environment or you should also buy our hardware product. But literally every single one is like, based on the data that we have, you. Can save money today and like the existing companies that serve them, didn't tell them that. So I think there's this moment where maybe somebody already knew that. Like maybe like the building engineer do that or the chief building engineer, I don't even know if that's job title. Is that a job title?
James Dice: [00:42:40] Yeah, pretty much
Ben Birnbaum: [00:42:42] Yeah. Whatever the leader of the building engineers. Some people probably do that but
it's hard. The building systems are, those are hard. They're made harder because the service providers have not invested in the kinds of things that they could invest in on the technology side. From my understanding I have not known a lot about the space for more than like 12, 18 months, but from my understanding people have been asking for updates to the big controllers, architecture and software products for two decades and haven't been getting them and they're like we want to be able to do things better.
And that has led to companies outside of them, like sky spark existing and. To be able to be built on top of them, that's led to the existence of a master systems integrator when that could have just existed inside of a product. And so just product development has never happened. But we're at this point where like cat's out of the bag, they've got all customers have data.
And I'm not saying that aren't impressive things to make building systems operate the way that they do, but there's a much wider stakeholder based style that is like, Oh, I better understand the accurate economic opportunity.
That's not why I think that now's the time. But I think that is like a lot of kindling for a fire. That's what I would call like up to 2018, 2019, and then 2019 , 2020, and certainly increasing. You know, the customer is an investor.
They're an asset owner. And so the way that their business works is they raise capital from banks or other capital markets and they buy assets and they get loans against those assets. That's generally the way that real estate works. And then the people that worked for them, fill them with tenants and manage the buildings,
they have NOI. In the last two years we have seen a shift in capital markets and this is only increasing. All across capital markets like financial institutions are meeting certain ESG characteristics. They are getting their funds pulled or they're getting penalized for not doing so.
That comes from the people that give them their money. Like LPs like big endowments and pensions and folks like that who manage the hundreds of billions of dollars that move our financial markets. So like you have folks who now can't access capital markets. You want to buy a new office building? You need to go and raise that capital and then go to the bank. You need to raise your equity, go buy that office building, be able to develop it.
At the same time, as you have this increasing awareness of projects that you could get done, which we could increase your NOI, but you have other things that can increase your NOI that Might be less of a pain in the ass. Like maybe you'll just increase rent by 1% and you don't have to like, figure out what's going on in the boiler room. But you have an increasing awareness of what's going on and the opportunity that you have. And then you have a lender presentation coming up and they're like, if you aren't showing me what you're doing to reduce your carbon footprint, my committee says, I can't give you a loan. And that's like really happening. In a whole other pocket of that world, you have utility rebate programs. Maybe you have a national infrastructure bill.
I don't think those things are really necessary, because the economics have always existed, but they drive it like a little bit more of a narrative. You have things like Local Law 97 in New York, on the negative side like really harsh if you are not compliant with it. So I think it's those things I think the economics have always existed, but if we go to this place where you can't do your core business anymore unless you show your results, then I think that's where the market goes from, a nice to have to a need to have. We're so excited about it because the economics they have made sense for a really long time. Like it's made sense to upgrade your controls. It probably has made sense to upgrade your controls, like for as long as there's been controls, I guess probably, always. I actually don't, even now I'm just making stuff up, but I'm further back in history that I'm aware of.
But like when Tridium started as a company, like that was probably their pitch that right?
James Dice: [00:47:11] Oh yeah. Before that. Yeah. Even before that, all the LA energy engineers out there are sitting there going, I am confident I can find a stream of energy savings with good controls in almost every building that any of us have ever touched.
Ben Birnbaum: [00:47:28] Yeah. Like you could show up in any building and even in efficient one and be like, I can find some amount of savings to sell you. I don't know if that's a hundred percent true, but. Yeah.
James Dice: [00:47:38] Part of why I moved on, like from going into buildings, because it was like,
about going into this building and finding energy conservation measures.
I need to get smarter about all the reasons why they're here showing up in the first place and no one can seem to get them implemented. That's why I had to
Ben Birnbaum: [00:47:57] kind of
James Dice: [00:47:57] move on. Yeah.
Ben Birnbaum: [00:47:58] well,
James Dice: [00:47:59] That's fascinating. I'm
wondering, know, I agree with what I just said.
Yeah. I'm wondering like most of what you just said was focused on bigger office buildings, and that whole market, and maybe even smaller office buildings as well. But how do you think about all the companies that you've invested in obviously. Maybe not Aqua Agricor, but the other companies you named there, they're hitting every vertical they're hitting. K-12 if you want to put a turn tide motor into a rooftop unit, you can do that at a Walmart, or you can do that at, any buildings. How do you think about the other verticals? And is there a wine now reason for them as well?
Ben Birnbaum: [00:48:36] That's a great question.
James Dice: [00:48:39] Office buildings are leading and going to pull the rest of the markets along.
Is that what you think?
Ben Birnbaum: [00:48:43] I don't necessarily think about it that way. But I think this is a important question to answer full disclosure. James is working on a white paper on this for Keyframe. But but I,
it's still focused on office buildings a little bit.
It's, I think it's focused on office for the ability to have, some amount of scope.
But I think about it more like larger buildings have more square footage and generally more ability to cut operational costs. And the ability to, it seems the ability to sell to them for solutions oriented companies is just higher value. And so just the payback is there when there's more square feet. And when there's more energy intensity but if you look at a building like a warehouse, like that's a very large building with a very low energy intensity. And so that's not always true.
Yeah. Yeah. So of course there are exceptions. I just, I think as you, you go to smaller and smaller buildings primarily I'm excited about the results of the white paper, but I just, I think market penetration is not very high yet.
And so B because the problem hasn't been solved. For example, retail can be just as, non-urgent not larger than office. So yeah, but market penetration is not very high yet. And so the market is focused on larger buildings because the value proposition connects more. And so projects are, customers are probably more profitable.
And I'm just, I'm not sure what it's going to take to get to the long tail of buildings. Like right now that the solutions companies are. Are pretty fragmented in what they provide even the way that you categorize them is just generally pretty fragmented.
And I just don't see how that works. Like I just don't see, I understand how that works for a large building, but honestly, even for a large building, like who wants to deal with so many different kinds of solutions because the pitch is always the same. The solution is just different. And so there's just a different part of the solution and then you gotta figure out how it all gets integrated together.
And so I think as we think about, smaller and smaller buildings, it's like we need more something that's more coordinated. I don't exactly know what that is. Yeah. Yeah, the
James Dice: [00:51:11] way I think about all the different verticals besides offices, is it the same, like strategy technology, strategies and technologies really?
They apply across all of them. It's just that each vertical needs its own like special touch. Like you mentioned all of the factors and the external things happening in the office space. That similar, some similar set of confluence of drivers is happening in healthcare and it's happening in retail and it's happening and, higher ed like think about higher ed.
That's a huge one. So all of those things are happening. It's just that technology extends into each of them and then needs to be tailored from a business model standpoint to hit that vertical in the way that hits, hardest. And then on the small building things, what Ben's talking about is we're going to do a white paper.
We're in the middle of doing a white paper on how. Energy efficiency and controls, potentially analytics can scale into the other 50% of the buildings that we haven't touched yet. And I think where I'm going in that, like in that direction, my perspective so far is that, like you're saying it's the same stuff that I've been hitting on in my writing and on this podcast, it's just, we have to streamline things to make it not so messy.
Like you're talking about the different categories. I think I have seven categories in my vendor landscape and you're right. They're like all very similar, but also fragmented and somehow yeah it's tough. So w people should be looking out for that white paper in about a couple of weeks after this podcast comes out.
So everyone will see an email about that.
I asked for no spoilers about it, so yeah. I feel like. Oh, totally betrayed just now. But,
cool. So as we wrap up here let's talk specifically about if I'm a founder of a startup in this space, what advice do you have for me, given that you've seen a bunch of pitches and are not active investor.
Ben Birnbaum: [00:53:04] It is a great question. You kind of are a startup in this space.
I think the first thing is probably, listen all of James podcast. Get all of your team Pro memberships at Nexus. Put all of your new employees through the nexus course. That's all the top of the list. Now you don't need to put the ads on the on the episode.
I think that there's like a couple of things that are probably like pretty generic. But one is that it's very specific to this space is to be really conscious of what it's going to take to scale in this space.
One building with performance is not 10 buildings with performance and 10 buildings with performance is not a hundred. Ten buildings with a big portfolio is not necessarily a path to a hundred buildings with the same portfolio. And there are elements of that are technology related, depending upon what your solution is, that you have to have a pretty thoughtful understanding of the way that your solution is supposed to scale when it's implemented and what you rely on for the implementation process.
Especially, if you need to be in buildings for that or whether or not you need to be in buildings, if you rely on some part of the buildings' controls architecture for it. It is unbelievable to me that, on the energy side of the space, just don't know that there's like a building controller and that they're not getting access to it.
Or like where their data is going to come from, the cost of scaling it and stuff like that. Or how they're going to make, changes to the operating conditions of a building and just because that was something that worked for a specific client, in a specific building and they did it in some way that was taped together and worked in one environment with one controller or even 10.
I just see that super often when it gets into the technology and so I think there's a technology aspect of that, and then there's a customer aspect of that which is like how are you designing your business to scale?
And there's a certain respect that you need to pay to the way that this industry is structured. The chain of commerce in this industry that I was talking about at the beginning of this episode with generalist contractors and specialist contractors, which you rely on and who you need to be swimming upstream with to be able to get paid from, you are not going to be able to do business with. There are some epic failures. If anybody wants to call me and talk about them, of folks who, have had great technology that have tried to go to market to sell directly to building operators and have signed a bunch of contracts with building operators and have not had successful companies. You need the the integrator to be someone that you can work with.
So anyways, there's a lot of examples like that, but I think that's a technology that's designed for scale that respects the space and a business plan that's designed for scale. The second thing I think would be sustainable unit economics of the product.
I see a lot of folks who are not necessarily always thinking about the fully costed economics of operating the business on, like really variable costing, everything that goes into the implementation and scale of what you need to do for a customer. It seems interesting and ended up having a sort of uncomfortable conversation like this doesn't actually look like it's profitable. That ties to another element of it, which is an understanding of the working capital and capitalization of the business, which might be an implementation cost.
It might be a CapEx cost. It might be a services organization that is realistically gonna need to exist. I have a lot of startups thinking about themselves only as SAS companies, when realistically they have hardware units, they have ongoing services that they provide to customers that they're just calling like their technology and R and D team that's really continuing to spend time with customers, but they're like, we're not going to need to continue to do that. It's got to really understand our business for what it is and think about what our unit economics really is like, what is our true profitability?
That's not a thing that an early stage company obviously knows about its maturity, but to have a a thoughtful point of view on where it is today and where you're hopeful to get it to and how you want to invest in getting it there, is something much more impressive than trying to burry it and say we're something we're not totally. And then the last thing is really generic, but I think people get excited to raise capital. I think it's should be approached with intense humility.
I made the comment earlier, you have a couple of things in your career that changed the arc of it. How many times you got to raise capital in your career? Twice? It's hard. It's also hard to invest, for what it's worth. You should prepare very thoughtfully for it.
She shouldn't rush into it. You should think about it being the right time, think very detailed about how and why you would use the capital to create value. A lot of people don't have of detailed use of proceeds. They provide a financial model and within their financial model is an implied budget, but it doesn't say on a page anywhere, here's how I would use capital and here's the value that I would hope to create. That would lead that out to the assumptions of an investor to try to come up with that and why would any entrepreneur want a bunch of investors coming up with their own ideas about what you're trying to imply there?
The last thing is having a good set of advisors about that. That checkbox thing about venture capital is so real. So everyone's going to tell you, no. And so you should just be prepared. They're going to tell you reasons why your business sucks but they're going to tell you those reasons in the form of questions.
And so if you have like a bunch of technical advisors about your product and a bunch of customers who, are there don't abuse those people's time, but if they're there and they're prepared to have high value conversations for you, they make a big difference because they provide you with a lot of credit.
James Dice: [00:59:36] Totally.
Those are three great points. Thank you. The startups will be grateful for that. The real startup.
Yeah. Not a real estate. If you're a real start event. I saw them, I started Keyframes for 16 months old. The most important point was I'll repeat it. Pro membership for nexus.
I said a slow,
Oh God. All right. Let's wrap up. What are you excited about the rest of this year? Are you looking
besides the white paper? Of course,
no. I can only think of the white paper and having a giant mental block and,
Ben Birnbaum: [01:00:07] you know,
James Dice: [01:00:07] see. Two hours ago, the Biden administration put on Instagram that we don't have to wear masks anymore. I'm hopeful that, that means that, what seems like it's been a better year than last year.
We'll we'll keep going. Awesome.
Thanks, Ben. Thanks for coming on the show. Thanks for supporting nexus. So it was fun to catch up.
Yeah. Yeah. I appreciate you having me.
[01:00:31] All right, friends. Thanks for listening to this episode of the nexus podcast for more episodes like this, and to get the weekly nexus newsletter, which by the way, readers have said is the best way to stay up to date on the future of the smart building industry. Please firstname.lastname@example.org. You can find the show notes for this conversation there as well. Have a great day.