- Bricks & Bytes Bulletin
- Posts
- 5 Principles for Building a Successful Retrofitting Company - From Two Leading Investors
5 Principles for Building a Successful Retrofitting Company - From Two Leading Investors
Owen Drury
July 03, 2024 • Estimated Reading Time: 8 minutes
INDUSTRY INSIGHTS
Smart Upgrades: Retrofitting for the 21st Century
Retrofitting is reshaping the built environment. It's not just about upgrading old buildings; it's a crucial step towards a sustainable future. With its massive potential market size, retrofitting is attracting significant attention from investors and innovators alike.
In the UK, around 30 million houses need upgrading. And in Germany, it’s a similar number with around 24 million houses.
We were fortunate to sit down with two investors (Foundamental and A/O [now noa]) and see what retrofitting means for investors and startups alike.
Why Retrofitting Matters
Climate goals and energy efficiency drive the push for retrofitting. But there's more to it. Regulatory pressures from the EU and national governments are increasing. Economic factors play a role too. Energy price volatility and the risk of stranded assets make retrofitting a smart financial move.
Customer demand is another key driver. Large corporations are making net-zero pledges, affecting their real estate choices. Tenants, too, are showing a preference for sustainable buildings.
Gregory Dewerpe explains:
"In developed economies like Europe or the US, about 90% of the buildings that will be here in 2050 are already built. So there's a lot of work, there's a lot of retrofitting to do."
Tech Innovations in Retrofitting
The huge demand for retrofitting across Europe has resulted in an influx of capital to tackle the space. But what are investors looking for when considering investing in retrofitting startups? Let’s explore:
Platformisation:
This involves creating platforms that enable people to go through the retrofitting process smoothly, like Enter. These platforms provide a one-stop shop experience, connecting homeowners with installers, financing options, subsidies, etc.
Platform solutions like Enter offer comprehensive retrofitting services. VARM focuses on specialised insulation solutions. These platforms streamline the complex retrofitting process.
New Technologies:
Investors also look at specific new technologies that will be part of the retrofitting toolbox, such as new types of heat pumps, materials and hardware.
But the magic happens when you can intersect the new technologies using both software and hardware. Two companies tackling this are PassiveLogic and Span.
Labor upskilling
Another consideration is using technology to enable labor upskilling and tap into a lower-skilled workforce to meet the demand for retrofitting services (solar, heat pumps, insulation, etc.).
There is a huge labour shortage industry-wide. This shortage is a major bottleneck for scaling retrofitting efforts. Technology that helps to upskill, expand the pool of workers, and increase productivity is a key consideration when looking to tackle retrofits.
How To Build A Winning Retrofitting Company
Below are a few of A/O’s and Foundamental’s hot-takes on what breeds a successful retrofitting startup:
Operational excellence and focus
Physical substance data
Self-identified demand
Expanding Services
Long-term vision
Operational Excellence and Focus
Operational excellence and focus are crucial for success in the retrofitting industry. Patric emphasizes the importance of "operational excellency, capital efficiency, focus, keeping your customer acquisition costs under great control," while Greg stresses that companies should "compete because you are just the best at what you do operationally."
Both highlight the need to provide superior customer experiences and maintain strong margins.
"I would say operational excellency, capital efficiency, focus, keeping your customer acquisition costs under great control, thinking about how to become a platform rather than a one-dimensional kind of tool that people could use."
Physical Substance Data
A key aspect of this excellence is leveraging physical substance data, which Patric describes as "what a good energy retrofit startup does." This data provides detailed information about buildings' physical properties, enabling companies to offer tailored, effective solutions. By utilizing this data, companies can position themselves as credible arbitrators, offering unbiased advice on the most effective retrofitting measures.
Self Identified Demand
Self-identified demand is another critical factor, with Patric noting the importance of creating "self-identified demand, meaning the demand comes to you and because they have done the energy audit, because they have triggered the energy audit, they have self-identified to have a purchase readiness." This approach allows companies to reduce customer acquisition costs and build trust with clients.
"What you want through these energy retrofit one-stop shops is to get to what we call self-identified demand, meaning the demand comes to you and because they have done the energy audit, because they have triggered the energy audit, they have self-identified to have a purchase readiness."
Expanding Services
As trust grows, companies can expand their services. Patric suggests that "because you have the trust of the building owner, you can arbitrate all of those [additional services], which gives access to a vast market." These expanded services can include financing, subsidies, insurance, and utility tariffs.
Long Term Vision
Finally, both experts emphasise the importance of a long-term vision. Greg notes that retrofitting "is not going to get solved in a week or in a year or in five years. It's a multi-decade process." This long-term perspective allows companies to build category-defining businesses and adapt to the evolving needs of the market.
"What we like is it's not going to get solved in a week or in a year or in five years. It's a multi-decade process. So you have the ability to really project yourself in building a category, defining business over the long term. This is not a fad."
The Future Of Retrofitting
The future looks bright for retrofitting. Market growth potential is enormous. We're likely to see greater integration with smart building technologies. Retrofitting will play a crucial role in achieving global climate goals. There's ample room for innovation in materials, processes, and business models.
Interested in learning more?
Check out the full episode with Gregory Dewerpe 👇 | Check out the full episode with Patric Hellermann👇 |
WEEKLY MUSINGS
AI, TikTok, and Contech ROI
Let's hear it from the real ones…
Time to join the party?
Don't judge a book by its ROI
RESEARCH
Insulation and Home Energy Solutions
VARM - Blow-in Insulation
VARM primarily focuses on providing energy efficiency solutions in the construction industry.
Their main offerings include blown-in insulation services, which is a method of thermal insulation that involves blowing loose-fill insulation material into wall cavities, attics, and other enclosed spaces and underfloor heating systems for trade customers
The company serves homeowners, property managers, and regional craft companies looking to improve energy efficiency and reduce heating costs
To get early access to the full reports (coming soon) sign up here. Note, this waitlist will CLOSE at 25 members. Don’t miss out.
Enter - Energy Renovation
Enter is a German startup that provides home energy assessments and solutions to help homeowners improve their energy efficiency.
Their platform allows homeowners to easily assess their home's energy needs and find financing options for necessary upgrades, such as insulation or heating system replacements.
By providing a user-friendly platform for homeowners to understand their energy usage and access financing for improvements, Enter aims to make it easier for consumers to take action and reduce their energy costs and environmental impact.
Unlock full reports before anyone else. Join an exclusive group of just 25 people with early access
BONUS CONTENT
What Are Investors Betting On?
OUR SPONSORS
 Shft — helping contractors like you leverage BIM to secure a leading position in the race towards construction’s digital future. |  BuildVision — streamlining the construction supply chain with a unified platform for contractors, manufacturers, and stakeholders. |