Capricorn Partners: Why we invested in Gradyent — AI for district heating

Construction21 Communication
/
the 20-08-2020
/

680

Please note that this article was originally published by Medium, here, and was written by Maarten Lambert, an Investment professional at Capricorn Partners.

Earlier this summer, we announced our first investment out of the Capricorn Digital Growth Fund. Together with Helen Ventures and ENERGIIQ we committed €1.9 million to Gradyent, a Netherlands based venture actively helping utility companies to better manage and optimize heating networks through a cloud-based digital twin solution and artificial intelligence.

A perfect storm

I knew little to nothing about district heating when going into my first meeting with Gradyent. Not so weird being from Belgium, where district heating is a relatively unknown phenomenon. This is quite different in the rest of Europe, especially across Scandinavia and Eastern Europe, where district heating is widely adopted since many decades. For those unfamiliar with the topic: the general idea is to produce heat centrally and distribute it to end users via a piping network.

I’ve spent quite some time to fully grasp the dynamics of this market and it became clear the district heating industry is experiencing unprecedented changes… A summary of my main takeaways:

District heating has been around for a long time. While even the Roman empire used heating networks for their famous hot-water baths, the onset of modern district heating took place in New York at the end of the 19th century. Second generation networks appeared as of 1930 gaining popularity in Eastern Europe. At that time, transport temperatures were still well above 100 degrees Celsius. Most modern networks we know today are based on 3rd generation technology, use pre-insulated pipes and lower transport temperatures. Over the last decades, Scandinavia became a global leader in the field of district heating with many Nordic citizens receiving their hot water through from heating networks.
District heating is a gigantic market of +$150bn and is growing at 4% annually driven by a global push for sustainability. Many governments are heavily pushing towards the use of more sustainable energy sources. As heat production is a global energy consumption giant, it is the #1 target for efficiency improvement. Europe aims to cut 40% in greenhouse gas emissions through a +30% share of renewable energy and +30% energy efficiency improvements. Gradyent’s AI technology is a key enabler to help district heating companies achieve these ambitious efficiency goals.
Heat production is getting increasingly complex to manage. Solar panels, geothermal, biomass, waste heat from data services… there are abundant sources of energy available to produce heat nowadays. Which source should be used at what moment in time? Should I put heat buffers in place and how large should those be? These questions can no longer be answered by mere human interaction. Operators require support from modern software tools to make the right decision at every moment.
Technology will play a crucial role in managing heating networks. The rise of Internet-of-Things has not spared district heating, with connected smart meters being rolled out as we speak. The value from this data can only be fully unlocked through the use of advanced analytical tools and machine learning techniques. The 4th generation of district heating networks fully embraces this smart energy approach and will be the perfect environment for Gradyent’s solution.

In conclusion, the global shift towards more sustainability, an increased number of energy sources to manage and billions of data points to be analyzed, create a perfect storm to boost the future growth of Gradyent.

100% fit

For every new investment, we look for a great fit with our investment thesis. In this case, Gradyent truly ticked all off the boxes. For more details on our investment criteria, I refer to my previous write-up.

Data driven. Gradyent’s solution allows raw data from smart meters, connected heat exchangers, weather data, historical heat use… to be translated to actionable insights. Hence, a clear fit with our data-driven strategy.
Technology as a barrier to entry. Gradyent’s cloud-based digital twin solution is built on strong technical foundations using the latest AI techniques.
Industry 4.0 is one of our key investment verticals we proactively invest in.
Clear problem. Market interviews showed district heating companies are desperately looking for new modern software solutions, as innovation has been lagging behind.
Top notch team. We strongly believe the team to be key, especially when investing in early stage companies. Gradyent has an absolute A-star team as described below.
Great return. We believe Gradyent to be ready for incredible growth benefiting from the market tailwinds as described before. Not only do we believe Gradyent to provide strong financial returns to our fund, we also have confidence about the positive impact on society overall.

All star team and investor syndicate

As of the start, the team impressed us with their focus, transparent way of working and deep industry expertise. Furthermore, the team has the right mix of entrepreneurial and corporate experience complementing each other. But perhaps most importantly: we truly valued their open and collaborative approach during due diligence and negotiations. Simply put, they were a joy to work with and I look forward continuing the cooperation as part of the board.

Lastly I want to mention something about the investment syndicate. When looking for potential partners for an investment, we strongly value a complementary skill set with our fund and investors that align with our values. While Capricorn brings extensive private venture capital experience with a focus on technology, Helen Ventures and Energiiq are perfectly suited to bring the needed energy sector expertise which we are lacking. Next to energy expertise, Energiiq represents a strong local partner for the syndicate. Helen Ventures’ participation, being at the forefront of district heating innovation, is a great recognition for the past work and future impact potential of Gradyent.

I am very much looking forward to being part of the Gradyent story, and look forward keeping you up to date. Don’t hesitate to get in touch if you want to know more about our portfolio or the Capricorn Digital Growth Fund.