All posts in “Venture Capital”

How France wants to become a tech giant

Vive la France — that was the dominant message of the day during a tour of the French tech ecosystem. But is it time to invest in French startups?

Around 40 partners of venture capital firms as well as limited partners came to Paris to talk about tech in France, from Andreessen Horowitz to Greylock Partners, Khosla Ventures and more. The two-day roadshow took place at Station F, the Vision Institute, iBionext and the Elysée Palace.

I grew up in France and it always surprises me that the same clichés come up again and again. When Symphony founder and CEO David Gurle answered questions about what it’s like to build an engineering team in France, it could have been easy to predict the questions — labor law is not flexible enough, French people are lazy, they go on strike all the time…

According to Gurle, who is great at storytelling, Symphony has been looking at around 15 countries for their next office. They first selected Singapore but couldn’t put a team together.

“We went to the board and said the next step is to invest in France,” Gurle said. At first, the board was really reluctant, citing the same concerns.

Chairman of Business France and Ambassador for International Investments Pascal Cagni has been dealing with those concerns for years. For instance, when it comes to labor law, he says the regulatory framework is now predictable and limited — unlike in the U.K. or Germany for instance. You can fire people whenever you want. It means that you’ll have to pay a severance package, but everything is laid out.

Silicon Valley is overheating right now. It’s become increasingly expensive and challenging to build a company — the tech industry is getting bigger and the biggest tech companies now dominate the talent market. That’s also part of the reason why Silicon Valley veterans are looking outside of their comfort zone.

Speeding things up

The question wasn’t about whether startups in France are a thing or not. The tone of the conversation was about pace and intensity. Is it time to invest now or should we wait?

“We’ve noticed that we started investing more in European startups without even thinking about it — not just French startups but all over Europe,” Battery Ventures General Partner Chelsea Stoner told me.

Depending on the study, France and the U.K. are battling to be the first European country when it comes to the number of VC deals and the total amount of money raised.

When I said three and a half years ago that France would be the tech leader in Europe, nobody believed that — and it’s happening John Chambers

But even more important than hard facts, the momentum has been pretty stunning. A few years ago, I could cover every single deal over $1 million. Now there are so many startups valued at hundreds of millions of dollars that it’s hard to keep track of all funding rounds above $20 or $30 million.

France has some of the best engineering schools in the world. And now, most students want to work for a startup. So if France has a lot of capital and a big pool of talent, what’s missing? Should French startups get more support from the French government?

“Five or six years ago, I would have said keep the government as far away as possible and I was wrong,” former Cisco CEO John Chambers told me. Chambers is now ambassador for La French Tech and doesn’t invest in French startups in order to avoid conflicts of interest. “When I said three and a half years ago that France would be the tech leader in Europe, nobody believed that — and it’s happening,” he said.

OpenClassrooms co-founder and CEO Pierre Dubuc said during a panel that one piece of regulation that has helped his startup quite a lot is the French Tech Visa. Thanks to this program, the company can get visas for future employees in just a matter of weeks.

Chambers says that it works both ways. American employees apply to the French Tech Visa, work for French startups for a while and then come back to the U.S. It moves the needle when it comes to changing mindsets in the U.S.

The French tech ecosystem also needs time. While there are a ton of good engineers, multiple people told me sales people and marketing talent are nowhere near the level of American tech companies.

Some employees will need to go through 3 or 4 different companies and experience many different situations to become better. At this point, they can reinvest back their knowledge into startups.

Big, late stage VC funds can also help speed things up. “Many people misunderstand the value of venture capital,” Chambers told me. Well-established funds have strong processes and know how to hire top management. That’s why bringing those VCs and LPs to Paris could help change things.

Macron’s macroeconomics

Without turning this article into a political piece, it’s hard to talk about foreign investors coming to Paris without mentioning the yellow vests movement.

LVMH Chief Digital Officer Ian Rogers had a nuanced take on the changes in the tech ecosystem. “It’s clear that they are [changing the mindset] and it’s clear that there’s opposition,” he said. “This is an exciting moment, it’s also probably a bubble. Let’s see what’s on the other side.”

In other words, tech can be a destructive industry. Nobody wanted to state that so directly, but everybody had that in mind.

Ron Conway even told me that Airbnb could be the solution to address inequalities. “This whole yellow coats issue, that’s about income inequality,” he told me. There are 500,000 hosts in France generating $3 billion in revenue — and there should be more according to him. But I don’t think startups can solve everything, unfortunately.

“There are going to be a few setbacks along the way and we’re seeing that with the social movement, but we shouldn’t lose the end goal,” Chambers told me.

Of course, seeing France implode is in no one’s interest. VC firms are also looking at different opportunities because Donald Trump and Brexit make the future unpredictable.

But it’s unclear if minimizing social movements is wishful thinking or long-term thinking.

Moving as a group

What was interesting about today’s visit is that some people are already investing quite a lot in French startups while others are completely new to the French tech ecosystem. When you hear Tony Fadell say that he’s invested in French startups with Xavier Niel for a few years, it creates a fear of missing out.

“You see how the valley goes, it moves as a group,” Chambers told me.

Bringing dozens of investors to Paris created some form of emulation. Nobody wants to be the first one to invest in something new, but nobody wants to be the last one either.

List of investors:

  • Joe Schoendorf, Accel Partners
  • Martin Casado, Andreessen Horowitz
  • Bernard Liautaud, Balderton
  • Chelsea Stoner, Battery Ventures
  • Philippe Lafont, Coatue
  • Matt Turck, FirstMark Capital
  • Hany Nada, GGV Capital
  • Dana Settle, Greycroft
  • Sarah Guo, Greylock Partners
  • Irena Goldenberg, Highland Europe
  • Erel Margalit, Jerusalem Venture Partners (JVP)
  • Samir Kaul, Khosla Ventures
  • Philipp Freise, KKR
  • Klaus Hommels, Lakestar
  • Scott Sandell, New Enterprise Associates
  • Isaac Hillel, Pitango Venture Capital
  • Boaz Dinte, Qumra
  • Ron Conway, SV Angel
  • Mark Suster, Upfront Ventures
  • Talbot Heppenstall, UPMC
  • Paul Graham, Y Combinator
  • Jessica Livingston, Y Combinator

+ 17 limited partners

The trust dilemma of continuous background checks

First, background checks at startups, then Huawei’s finance chief is arrested, SoftBank’s IPO is subscribed, and I am about to record our next edition of TechCrunch Equity. It’s Thursday, December 6, 2018.

TechCrunch is experimenting with new content forms. This is a rough draft of something new – provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here.

The dilemma of continuous background checks

My colleague John Biggs covered the Series A round for Israel-based Intelligo, a startup that provides “Ongoing Monitoring” — essentially a continuous background check that can detect if (when?) an employee has suddenly become a criminal or other deviant. That’s a slight pivot from the company’s previous focus of using AI/ML to conduct background checks more efficiently.

Background checks are a huge business. San Francisco-based Checkr, perhaps the most well-known startup in the space, has raised $149 million according to Crunchbase, driven early on by the need to on-board thousands of contingent workers at companies like Uber. Checkr launched what it calls “Continuous Check” which also actively monitors all employees for potential problems, back in July.

Now consider a piece written a few weeks ago by Olivia Carville at Bloomberg that explored the rise of “algorithmic auditors” that actively monitor employee expenses and flags ones it feels are likely to be fraudulent:

U.S. companies, fearing damage to their reputations, are loath to acknowledge publicly how much money they lose each year on fraudulent expenses. But in a report released in April, the Association of Certified Fraud Examiners said it had analyzed 2,700 fraud cases from January 2016 to October 2017 that resulted in losses of $7 billion.

Here’s a question that bugs me though: we have continuous criminal monitoring and expense monitoring. Most corporations monitor web traffic and email/Slack/communications. Everything we do at work is poked and prodded to make sure it meets “policy.”

And yet, we see vituperative attacks on China’s social credit system, which …. monitors criminal records, looks for financial frauds, and sanctions people based on their scores. How long will we have to wait before employers give us “good employee behavior” scores and attach it to our profiles in Slack?

The conundrum of course is that no startup or company wants (or can) avoid background checks. And it probably makes sense to continually monitor your employees for changes and fraud. If Bob murders someone over the weekend, it’s probably good to know that when you meet Bob at Monday’s standup meeting.

But let’s not pretend that this continuous monitoring isn’t ruinous to something else required from employees: trust. The more heavily monitored every single activity is in the workplace, the more that employees feel that if the system allows them to get away with something, it must be approved. Without any checks, you rely on trust. With hundreds of checks, policy is essentially etched into action — if I can do it, it must meet policy.

In China, where social trust is extremely low, it likely makes sense to have some sort of scoring mechanism to substitute. But for startups and tech companies, building a culture of trust — of doing the right thing even when not monitored — seems crucial to me for success. So before signing up for one of these continuous services, I’d do a double take and consider the potentially deleterious consequences.

If I was a startup employee, I would think twice (maybe thrice?) before traveling to China

Photo by VCG/VCG via Getty Images

Last weekend, Trump and Xi agreed to delay the implementation of tariffs on Chinese goods, which led to buoyant Chinese (tech) stocks Monday in Asia time zones. I wrote about how that doesn’t make any sense, since delaying tariffs doesn’t do anything to solve the structural issues in the US/China conflict:

To me the market is deeply misjudging not only the Chinese economy, but also the American leadership as well.

And specifically, I wrote about constraints on Huawei and ZTE:

In what world do these prohibitions disappear? The U.S. national security agencies aren’t going to allow Huawei and ZTE to deploy their equipment in America. Like ever. Quite frankly, if the choice was getting rid of all of China’s non-tariff barriers and allowing Huawei back into America, I think the U.S. negotiators would walk out.

So it was nice to learn (for me, not for her) that the head of finance of Huawei was arrested last night in Canada at the United States’ request. From my colleague Kate Clark:

Meng Wanzhou, the chief financial officer of Huawei, the world’s largest telecom equipment manufacturer and second-largest smartphone maker, has been arrested in Vancouver, Canada on suspicion she violated U.S. trade sanctions against Iran, as first reported by The Globe and Mail.

Huawei confirmed the news with TechCrunch, adding that Meng, the daughter of Huawei founder Ren Zhengfei, faces unspecified charges in the Eastern District of New York, where she had transferred flights on her way to Canada.

If you wanted to know how the Trump administration was going to continue to fight the trade war outside of tariffs, you now have your answer. This is a bold move by the administration, targeting not just one of China’s most prominent tech companies, but the daughter of the founder of the company to boot.

China has since demanded her return.

Here is how this is going to play out. China is preventing the two American children of Liu Changming from leaving the country, essentially holding them hostage until their father returns to the mainland to face a criminal justice process related to an alleged fraud case. America now has a prominent daughter of a major Chinese company executive in their hands. That’s some nice tit-for-tat.

For startup founders and tech executives migrating between the two countries, I don’t think one has to literally worry about exit visas or extradition.

But, I do think the travel security operations centers at companies that regularly have employees moving between these countries need to keep very keen and cautious eyes on these developments. It’s entirely possible that these one-off “soft hostages” could flare to much higher numbers, making it much more complicated to conduct cross-border work.

Quick Bites

SoftBank’s IPO raises a lot of dollars

KAZUHIRO NOGI/AFP/Getty Images

Takahiko Hyuga at Bloomberg reports that SoftBank has sold its entire book of shares for its whopping $23.5 billion IPO. The shares will officially price on Monday and then will trade on December 19. This is a critical and important win for Masayoshi Son, who needs the IPO of his telecom unit to deleverage some of the risk from SoftBank’s massive debt pile (and also to continue funding his startup dreams through Vision Fund, etc.)

SoftBank Vision Fund math, part 2

Arman and I talked yesterday about the complicated math behind just how many dollars are in SoftBank’s Vision Fund. More details, as Jason Rowley pointed out at Crunchbase News:

In an annual Form D disclosure filed with the Securities and Exchange Commission this morning, SBVF disclosed that it has raised a total of approximately $98.58 billion from 14 investors since the date of first sale on May 20, 2017. The annual filing from last year said there was roughly $93.15 billion raised from 8 investors, meaning that the Vision Fund has raised $5.43 billion in the past year and added six new investors to its limited partner base.

I said yesterday that the fund size should be “$97 billion or $96.7 billion with precision, assuming this $5 billion reaches a final close.” So let’s revise this number again to $99 billion or $98.6 billion with precision, since it seems the $5 billion did indeed close.

What’s next

I am still obsessing about next-gen semiconductors. If you have thoughts there, give me a ring: danny@techcrunch.com.

Thoughts on Articles

Hopefully more reading time tomorrow.

Reading docket

What I’m reading (or at least, trying to read)

  • Huge long list of articles on next-gen semiconductors. More to come shortly.

Farmstead is an ambitious grocery delivery startup with plans to defeat Instacart

In its 3,000-square-foot warehouse in San Francisco’s Mission District, Farmstead founders Pradeep Elankumaran and Kevin Li, a pair of former Yahoo product managers, plot the future of grocery shopping.

“Think of us as if Whole Foods was rebuilt from scratch by tech founders,” Elankumaran, Farmstead’s chief executive officer, told TechCrunch. “Of course we do delivery because it’s 2018 and no one wants to go to the store anymore.”

Elankumaran launched San Francisco-based Farmstead in 2016 after Amazon and Instacart’s food delivery services repeatedly disappointed him. The startup leverages artificial intelligence-powered predictive analytics and machine learning to accurately predict supply and demand of its inventory, a move Elankumaran says has helped the company significantly reduce waste, as well as complete deliveries to Bay Area residents in less than an hour.

“I had a lot of trouble getting food delivered consistently,” he said. “My daughter had just turned two and she started drinking a lot of milk and I found myself going to the grocery store three to four times a week to buy the same things.”

“So I posted on Nextdoor asking if anyone was interested in a milk, eggs and bread delivery service and in two days, 200 people said yes.”

Two-plus years later, the company is today announcing an additional seed round of $2.2 million, bringing its total raised to date to $7.5 million. ARTIS Labs, Resolute Ventures and Red Dog Capital participated in the round, along with Y Combinator . Farmstead completed the Silicon Valley accelerator program in 2016 shortly before its initial launch, similar to Instacart, which graduated from Y Combinator in 2012. Elankumaran said the company plans to use the capital to hire aggressively and expand beyond the Bay Area in 2019. 

Farmstead’s business may sound a lot like Instacart, a very well-funded grocery delivery service worth an astounding $7.6 billion, but the startup says the differences are notable. Instacart is a tech layer on top of a supermarket that provides delivery, whereas Farmstead is the supermarket and the delivery service. Elankumaran says this — storing groceries in large, centralized warehouses and making the deliveries — is a highly scalable model destined to defeat Instacart.

Resolute Ventures general partner Mike Hirshland said in a statement that Farmstead could “become a monster company.”

“To replace a trip to the grocery store, so many things have to go right, from ordering the right inventory to last-mile delivery. Farmstead has cracked the code on making grocery delivery profitable and rapidly scalable,” he said.

The company has also recently partnered with Udelv, an autonomous vehicle startup, to make deliveries via the company’s modified GEM eL XD electric trucks.

Foxconn or Foxgone? Tariffs, Wisconsin, and iPhone fires

First some notes on SoftBank’s rumored expansion into China and its weird fund math, then Foxconn, and then quick notes on tech depression, Huawei, and more.

TechCrunch is experimenting with new content forms. This is a rough draft of something new – provide your feedback directly to the author (Danny at danny@techcrunch.com) if you like or hate something here.

SoftBank has fund visions (and a Vision Fund) for China? That, and more money

Kane Wu at Reuters reported over night that SoftBank is looking to open an office and hire an investment team in China, which Wu says will be based in Shanghai. That’s following the fund’s recent global expansion with new targeted offices in Saudi Arabia and India.

When I saw this, I sort of did a double-take: SoftBank doesn’t have a presence in China? The fund has reportedly been seeking investments in some of China’s leading unicorn stars, including controversial face recognition startup SenseTime, and leading edtech startup Zuoyebang (作业帮, which literally translates as “school assignment help”). (Hat tips to Selina Wang at Bloomberg, who seems to just be sitting in Vision Fund partner meetings). And of course, it dumped a pretty penny into WeWork China, where it was part of a $500 million syndicate, and is a huge investor in Didi.

It’s sort of obvious that SoftBank would expand to China. What will be interesting though is to see how the fund structures itself long-term. As far as I know, the Vision Fund is a singular “fund” that invests worldwide (send me an email if I am wrong on this count). China has a thicket of regulations on funds and companies, which is one of several reasons we see specifically China-focused vehicles (such as Lightspeed and Lightspeed China or Sequoia and Sequoia China). If the Vision Fund continues to be a unified fund, that would be a notable strategy shift that might be cloned by other trans-Pacific funds.

Aside: SoftBank Vision Fund math is complicated

Rajeev Misra, board director of SoftBank Group and CEO of SoftBank Investment Advisors. Photo by Drew Angerer/Getty Images.

When it first closed the Vision Fund, SoftBank explained they had raised just over $93 billion in committed capital or, more precisely, around $93.15-$93.2 billion according to the initial investor presentations and its annual Form D filings. In those docs, SoftBank said that the fund was financed with $28 billion from SoftBank and $65 billion from third-party investors.

On top of the $93 billion raised for the Vision Fund, SoftBank detailed that it had committed $4.5 billion of its own capital to a separate “Delta Fund,” which was used to alleviate conflicts around SoftBank’s Didi investment. Thus, SoftBank’s total VC funding aggregates to around $97.7 billion.

To add a complication, SoftBank later shifted $1.6 billion of the Vision Fund’s previously disclosed $65 billion in third-party capital over to the Delta Fund. In current disclosures, SoftBank shows $91.7 billion of committed capital for the Vision Fund ($28.1 billion from SoftBank and $63.6 billion from third-party investors). For the Delta Fund, SoftBank shows $6 billion in committed capital ($4.5 billion SoftBank contribution and $1.6 billion from third-party investors).

Here is where it gets even more complicated. In its latest filings, SoftBank also notes that it completed the interim closing of an additional $5 billion for the Vision Fund in mid-October, “intended for the installment of an incentive scheme for operations of SoftBank Vision Fund.” That additional cash would bring Vision Fund’s total committed capital to $96.7 billion, and $102.7 billion together with the Delta Fund.

While it wouldn’t be included in the committed equity capital total, SoftBank is also rumored to be raising a $4 billion credit facility to help finance additional acquisitions.

So, it’s probably best to say that the Vision Fund — as constituted right now — is $97 billion or $96.7 billion with precision, assuming this $5 billion reaches a final close.

SoftBank IPO

We have of course covered SoftBank quite obsessively, particularly its debt situation (Part 1, Part 2, Part 3, Part 4, and Part 5). What we haven’t covered more recently is the latest developments in SoftBank’s IPO, which is slated for December 19th and expected to bring in a haul of $21 billion. More to come on that front in the coming days.

Foxconn or Foxgone?

US President Donald Trump and Foxconn Chairman Terry Gou. BRENDAN SMIALOWSKI/AFP/Getty Images

The South China Morning Post reported yesterday that Foxconn is investigating expanding its factories to Vietnam in order to avoid tariffs. Makes sense, and I have some calls this week and next trying to suss out how much hardware supply chains have really changed in response to the trade conflict.

That decision though isn’t just about the trade conflict, but also about the quickly increasing wages of Chinese laborers as well as political interference from Beijing. The Trump administration’s trade policies are just the excuse Foxconn needs to (at least partially) extricate itself from China, while saving face in the process.

What’s interesting is that Foxconn is also dealing with a massive brush fire in Wisconsin, where it received one of the largest economic development incentives ever offered by an American government, a whopping $3 billion package that was expected to drive manufacturing employment in the state.

Over night, Republicans in the state legislature passed a bill that would place large restrictions on incoming Democratic governor Tony Evers. Jessie Opoien for the (Madison) Cap Times:

Under the bill, legislators would have increased influence over the Wisconsin Economic Development Corporation, and the WEDC board, not the governor, would appoint the job creation agency’s CEO. However, the governor’s power to appoint a CEO would be restored in September 2019.

That is the agency that provided the Foxconn funding, which has become a political football in Wisconsin politics. Republicans are trying to protect one of the major economic legacies of outgoing governor Scott Walker, as well as what they believe is the future direction of manufacturing work in the state. Democrats smell a boondoggle in the making.

If that wasn’t all, rumored skimpy sales for iPhones is putting enormous pressure on Foxconn’s bottom line. Debby Wu at Bloomberg reported two weeks ago that:

The contract manufacturer aims to cut 20 billion yuan ($2.9 billion) from expenses in 2019 as it faces “a very difficult and competitive year,” according to an internal document obtained by Bloomberg. The company’s spending in the past 12 months is about NT$206 billion ($6.7 billion).

Foxconn is a very dynamic organization that has weathered repeated crises over the years. It is pretty much unique in what it does today: very few other companies can scale up and down hundreds of thousands of workers to meet iPhone and other device demands with such alacrity.

But, the fundamentals of the mobile device market have apparently changed dramatically this year, and Foxconn is likely to be the company most harmed as the assembler of those devices. That could destroy not just the Chinese dream of leading in manufacturing, but also the Vietnam and Wisconsin dreams as well.

Also: If you haven’t read it, this poetry by a Foxconn worker who committed suicide really resonated with me. Foxconn’s suicide problem is well-documented, but we often don’t hear from the individuals themselves.

Quick bites

Which big tech companies are most depressed?

Blind, the anonymous enterprise chatting app that has taken the tech world by storm, published survey results asking tech employees “I believe I am depressed.” Roughly 40% of employees responded yes. Interestingly, there wasn’t too much variation between companies. Amazon had the highest rate at 43% and Apple had the lowest rate at 30%. It’s an informal survey, probably without high scientific validation, but it is a reminder for all of us in the community that mental health and burnout is very real in the startup and tech ecosystems and we should be vigilant in helping each other when times are rough.

More bad news for Huawei as British Telecom bans its equipment

This is one of those stories that we are just going to keep on hearing about. After bans in Australia and New Zealand, British Telecom has announced they will not just ban Huawei’s 5G equipment, but also its 3G and 4G equipment. Britain, like Aus/NZ, Canada and the US are part of the Five Eyes intelligence network, and national security officials have been leading the crusade against Huawei infrastructure. What’s interesting is not just the rapidity of the bans, but also that the bans haven’t (from what I have seen) migrated outside the Five Eyes community yet.

Pendo commits to hometown of Raleigh

Relaigh skyline. Photo by James Willamor used under Creative Commons via Flickr.

Pendo is a digital product management platform that has had quite a bit of success with customers and has raised more than $100 million in VC funding, most recently a Series D from Sapphire. The company announced that they have received a grant from home state North Carolina’s economic development department to grow in the Raleigh region. Pendo is committing $34.5 million to its headquarters (with the potential of creating 590 jobs), while the state will offer around $8.8 million in potential reimbursements over the next 12 years.

Given what I wrote yesterday about Wes McKinney leaving NYC and heading to Nashville and the work Chattanooga is doing to aid startups, it’s great to see other hotspots like Raleigh, NC invest to build out their ecosystems in a compelling way.

Todd Olson, CEO of Pendo, explained to me by email that, “Office rents in our downtown are a fraction of the cost of operating in other cities, and the cost of living is appealing to our employees. They can afford to buy a house here. In some markets around the country, that is becoming more difficult. It’s also just a nice place to live and work.”

Creative work is increasingly going to have to find a lower cost home.

What’s next

I am still obsessing about next-gen semiconductors. If you have thoughts there, give me a ring: danny@techcrunch.com.

Thoughts on Articles

The LP Anti-Portfolio – Great short read. Lindel Eakman, former managing director at UTIMCO, the University of Texas/Texas A&M endowment, gives a list of funds that he passed on that he now regrets. Unfortunately, this is pretty rare coming from an LP, albeit a former one. It would be great to get more public discussion on what funds were missed and why by LP investors.

Hopefully more reading time tomorrow.

Reading docket

What I’m reading (or at least, trying to read)

  • Huge long list of articles on next-gen semiconductors. More to come shortly.

Cove.Tool wants to solve climate change one efficient building at a time

As the fight against climate change heats up, Cove.Tool is looking to help tackle carbon emissions one building at a time.

The Atlanta-based startup provides an automated big-data platform that helps architects, engineers and contractors identify the most cost-effective ways to make buildings compliant with energy efficiency requirements. After raising an initial round earlier this year, the company completed the final close of a $750,000 seed round. Since the initial announcement of the round earlier this month, Urban Us, the early-stage fund focused on companies transforming city life, has joined the syndicate comprised of Tech Square Labs and Knoll Ventures.

Cove.Tool software allows building designers and managers to plug in a variety of building conditions, energy options, and zoning specifications to get to the most cost-effective method of hitting building energy efficiency requirements (Cove.Tool Press Image / Cove.Tool / https://covetool.com).

In the US, the buildings we live and work in contribute more carbon emissions than any other sector. Governments across the country are now looking to improve energy consumption habits by implementing new building codes that set higher energy efficiency requirements for buildings. 

However, figuring out the best ways to meet changing energy standards has become an increasingly difficult task for designers. For one, buildings are subject to differing federal, state and city codes that are all frequently updated and overlaid on one another. Therefore, the specific efficiency requirements for a building can be hard to understand, geographically unique and immensely variable from project to project.

Architects, engineers and contractors also have more options for managing energy consumption than ever before – equipped with tools like connected devices, real-time energy-management software and more-affordable renewable energy resources. And the effectiveness and cost of each resource are also impacted by variables distinct to each project and each location, such as local conditions, resource placement, and factors as specific as the amount of shade a building sees.

With designers and contractors facing countless resource combinations and weightings, Cove.Tool looks to make it easier to identify and implement the most cost-effective and efficient resource bundles that can be used to hit a building’s energy efficiency requirements.

Cove.Tool users begin by specifying a variety of project-specific inputs, which can include a vast amount of extremely granular detail around a building’s use, location, dimensions or otherwise. The software runs the inputs through a set of parametric energy models before spitting out the optimal resource combination under the set parameters.

For example, if a project is located on a site with heavy wind flow in a cold city, the platform might tell you to increase window size and spend on energy efficient wall installations, while reducing spending on HVAC systems. Along with its recommendations, Cove.Tool provides in-depth but fairly easy-to-understand graphical analyses that illustrate various aspects of a building’s energy performance under different scenarios and sensitivities.

Cove.Tool users can input granular project-specifics, such as shading from particular beams and facades, to get precise analyses around a building’s energy performance under different scenarios and sensitivities.

Traditionally, the design process for a building’s energy system can be quite painful for architecture and engineering firms.

An architect would send initial building designs to engineers, who then test out a variety of energy system scenarios over the course a few weeks. By the time the engineers are able to come back with an analysis, the architects have often made significant design changes, which then gets sent back to the engineers, forcing the energy plan to constantly be 1-to-3 months behind the rest of the building. This process can not only lead to less-efficient and more-expensive energy infrastructure, but the hectic back-and-forth can lead to longer project timelines, unexpected construction issues, delays and budget overruns.

Cove.Tool effectively looks to automate the process of “energy modeling.” The energy modeling looks to ease the pains of energy design in the same ways Building Information Modeling (BIM) has transformed architectural design and construction. Just as BIM creates predictive digital simulations that test all the design attributes of a project, energy modeling uses building specs, environmental conditions, and various other parameters to simulate a building’s energy efficiency, costs and footprint.

By using energy modeling, developers can optimize the design of the building’s energy system, adjust plans in real-time, and more effectively manage the construction of a building’s energy infrastructure. However, the expertise needed for energy modeling falls outside the comfort zones of many firms, who often have to outsource the task to expensive consultants.

The frustrations of energy system design and the complexities of energy modeling are ones the Cove.Tool team knows well. Patrick Chopson and Sandeep Ajuha, two of the company’s three co-founders, are former architects that worked as energy modeling consultants when they first began building out the Cove.Tool software.

After seeing their clients’ initial excitement over the ability to quickly analyze millions of combinations and instantly identify the ones that produce cost and energy savings, Patrick and Sandeep teamed up with CTO Daniel Chopson and focused full-time on building out a comprehensive automated solution that would allow firms to run energy modeling analysis without costly consultants, more quickly, and through an interface that would be easy enough for an architectural intern to use.

So far there seems to be serious demand for the product, with the company already boasting an impressive roster of customers that includes several of the country’s largest architecture firms, such as HGA, HKS and Cooper Carry. And the platform has delivered compelling results – for example, one residential developer was able to identify energy solutions that cost $2 million less than the building’s original model. With the funds from its seed round, Cove.Tool plans further enhance its sales effort while continuing to develop additional features for the platform.

The value proposition Cove.Tool hopes to offer is clear – the company wants to make it easier, faster and cheaper for firms to use innovative design processes that help identify the most cost-effective and energy-efficient solutions for their buildings, all while reducing the risks of redesign, delay and budget overruns.

Longer-term, the company hopes that it can help the building industry move towards more innovative project processes and more informed decision-making while making a serious dent in the fight against emissions.

“We want to change the way decisions are made. We want decisions to move away from being just intuition to become more data-driven.” The co-founders told TechCrunch.

“Ultimately we want to help stop climate change one building at a time. Stopping climate change is such a huge undertaking but if we can change the behavior of buildings it can be a bit easier. Architects and engineers are working hard but they need help and we need to change.”