Energy Storage System: Behind The Deal With Pangaea Ventures

On December 12, 2017, Portland, Oregon-based Energy Storage System (ESS) announced it had secured US $13 M in Series B funding. The round included original investors and CVCA members, Pangaea Ventures as well as Cycle Capital Management. Presidio Partners Investment Management, InfraPartners Management and BASF Venture Capital also participated in the deal.

ESS is a developer of a low-cost, long-duration battery for commercial and utility-scale energy storage. The new funding will be used to expand and automate the manufacturing process of the company’s iron flow battery, the Energy Warehouse. It will also support the company’s business development activities with system integrators and strategic partners, creating a stronger ecosystem for promoting its clean, low-cost, long-duration energy storage solution.

For the latest in the CVCA’s ​“Behind The Deal” series, we caught up with Andrew Haughian, General Partner, Pangaea Ventures, to get his take on the deal.

Why did Pangaea choose to invest in this company and the management team?

Pangaea led ESS’s Series A investment in 2015 after making the determination that the market opportunity for a low-cost energy storage technology would quickly develop in the coming years.

We conducted a global review of all of the technologies and companies looking to serve this market. We concluded that ESS had a unique ability to scale-up its production in a very capital-efficient manner; including an incredibly steep cost reduction curve that would allow the technology to scale into regional energy markets with local manufacturing. This also allowed ESS to compete with incumbent technology even in the early days.

Of course, the management team was critical in our decision to invest and the progress the company made in developing a working prototype with only government funding was a true testament to the ingenuity of the entire team.

What will the invested dollars be used for?

The Series B financing is being used to build out the management team and scale-up production. The company has recently moved into its new global headquarters, a former HP factory in South Portland, Oregon. This 100,000-square foot facility actually has the potential to almost reach ​“Giga-Factory” (1GWh) of production with a capital investment in automation totalling less than $6M.

Where did you hear about ESS?

Pangaea learned about ESS after it was originally awarded ARPA‑E funding from the US DOE in order to develop a working product. We followed progress for several years before finally leading the investment in early 2015.

What is your anticipation about this sector in the short term and long term?

Energy storage is the hottest, highest growth sector within the energy tech and cleantech market. While over the last several years the market has been focused on ​“short duration” market segments, primarily served by lithium ion technology, over the last year or so there has been a sea-change in the market. There is now a recognition in the importance of longer duration storage if we truly want to enable deep renewable energy penetration with solar and wind energy.

There is also a recognition that safety, lifetime, performance and cost limitations with lithium-ion technology creates a window of opportunity for the novel approach of ESS.

Is there anything particularly interesting about the deal with ESS that you’d like to emphasize?

Almost all of the companies that have raised venture funding to commercialize a new battery chemistry have required triple digit millions to develop and scale the technology into early production. ESS has uniquely been able to deliver on commercial orders with approximately $5M in investor capital and this recently closed Series B provides the capital for the company’s initial scale-up.

What is your exit horizon on this deal?

The capital efficiency and high margin potential of ESS’s technology allows the company the possibility to rapidly scale with a roadmap towards an IPO listing. That being said, with storage quickly becoming the darling of the energy sector we believe that there will be high interest in strategic acquisition from large utility or industrial type companies within the two-to-three-year timeframe.

Tell us about the lead at your firm involved in this deal.

Andrew Haughian has deep experience within the energy sector. Starting with his undergraduate engineering degree which had a particular focus on energy and the environment, his early career provided exposure to the oil and gas and other industrial markets. At Pangaea, Andrew has led several investments within the energy sector including a thin film solar company that was eventually sold to an Asian buyer that has continued to invest in the technology and is planning to scale up to 1GW of production in the coming years.

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