Deal Radar 2008: Carbonetworks

Carbonetworks helps companies develop effective carbon strategies by providing a software platform to find solutions to reduce costs and monitor energy usage. The software monetizes a client’s carbon inventory and provides a clear view of whether carbon represents a financial asset or liability to the company in the future, given its planned investments and business decisions. Once a company knows what it has, how much it’s worth and what its carbon inventory means to its future financial situation, Carbonetworks links the company to all of the reductions available in the market, including offsets, credits and energy reductions consulting. 

Carbonetworks was incorporated in 2005, but CEO and co-founder Michael Meehan began to develop the idea during his undergraduate education in Environmental Studies in 1993. Meehan spent 12 years in the software field, first as a developer and later as marketing director and senior product manager. He also started two companies – Climate Resource and Eye of the Beholder Media. Co-founder Stephen Mooney now heads the Business Development efforts. Being the first carbon management vendor, Carbonetworks was very early for the market and in fact for the first five years of its existence, funders unanimously agreed that the company had no market. This early entry, however, may have contributed to the company’s gaining a leadership position. 

Carbonetworks is based in Victoria, British Columbia, Canada. It was initially self funded and raised money from family and friends in 2006. In 2007, the company raised a small undisclosed angel round. In July 2008 Carbonetworks was one of the first carbon management vendors to secure VC funding, raising a $5 million Series A through NGEN Partners. Carbonetworks is considering a Series B investment in 2009. 

While in the US it is still a question of when carbon markets will be a reality, in the rest of the world they already are. According to Goldman Sachs, carbon financial markets reached $65 billion (bigger than wind and solar combined) last year and are estimated to reach $100 billion this year. Once the US gets involved, analysts estimate the market could hit $1 trillion or more. The Financial Times estimates this market will outstrip conventional commodities markets to reach $2 billion or more by 2020. But even with the shift in global financial markets and greater public demand for cleaner energy, carbon is a nascent market with a significant amount of risk. 

In the past, the company has had very little competition; however, this is changing as the US market emerges. Traditionally Carbonetworks has competed against the incumbent EHS (Environmental Health and Safety) vendors and consultants, but their greatest competition seems to be the “do-nothing” approach many companies employ. Newcomers to the market differ significantly from traditional vendors. It is too early for the eventual consolidators of this market, for example Microsoft, SAP, SAS and IBM, to start making significant investments in this area, and it seems that tentative moves from these vendors are actually just extensions of their ERP solutions and not actual new products. 

Carbonetworks describes itself as a horizontal play in a market of vertical solutions, and says that it differs from new entrants by offering not only carbon management, risk analysis, and carbon strategy solutions, but also by channeling to thousands of energy/carbon reduction providers that need direct access to clients who need the reductions. 

Carbon spans multiple segments in different ways – energy, manufacturing and retail, oil and gas and heavy machinery, IT, banking and financial, and chemicals. Regulatory or executive corporate mandates for carbon reductions would of course represent an opportunity for Carbonetworks and its competitors.

Carbonetworks works on a Software-as-a-Service (SaaS) model. The company offers trial accounts through which enterprises can actively manage their footprints before committing to a contract. Prices for their software vary depending on the amount of carbon emissions the company produces, with prices going down once emissions are reduced. Customer retention comes from Carbonetwork’s ownership and management of a company’s carbon data, its translation to bottom-line accountability, and the link to reductions inventories that is unavailable elsewhere in the market. The company currently has 330 corporate subscribers in 41 countries, and this number grows by two to three corporate subscribers daily. Although it did not disclose exact figures, the company says it is currently generating revenue.

An article in InformationWeek discusses how carbon offsets have received bad press over the last few years, with experts calling them “greenwashing” to cover up wasteful energy practices with clever marketing. CEO Meehan says that the value of these offsets already makes the services offered by Carbonetworks attractive.  Today, with rising energy prices and increasing public pressure to control emissions, which are believed to lead to global warming, services offered by companies like Carbonetworks may become even more attractive.  

Carbonetworks should develop a high-profile carbon rating system and publish the carbon efficiency of its clients in a highly visible manner, so that it becomes desirable for companies to partake in the company’s measurement and optimization facility.

Related Readings:
Global Warming and Phase Changes
 Ah, Plant Trees and Get Tax Concessions!
Redesign That: Design That Moves Politics (for a discussion of emission reductions proposed by Barack Obama and John McCain during their campaigns)

This segment is a part in the series : Deal Radar 2008