Eyebrows raised this summer when upstart renewable energy provider Bulb closed £60m in funding with the same investors as Facebook, Twitter and Airbnb. With Bulb committed to social purpose at its core, what effect will the venture funding have? Julian Blake talks to chief executive Hayden Wood about the investment – and his target to hit a million users.
There was quite a stir in the UK energy sector this summer, when it emerged that Bulb, a startup supplying renewable energy for less than three years, could be about to become the UK’s first billion-dollar-valued ‘green unicorn’.
That possibility was made more real because of a £60m equity funding injection into the business. News of the funding was revealed on DigitalAgenda in August, after Companies House showed 6.5m new shares issued to a mystery backer.
Two weeks later, with rumours circulating of a sale, Bulb confirmed that its unknown backers were Russian-Israeli billionaire Yuri Milner, through investment firm DST Global, alongside US hedge fund Magnetar Capital.
With the new share issue confirming a £400m pre-money valuation for the business, the presence in the deal of DST – already a backer of Facebook, Twitter and Airbnb – reinforced predictions of Bulb’s growth into a billion-dollar business.
With the company already on exponential growth – shooting from 15,000 to over 800,000 users, and an east London office bursting at the seams – all the mega-growth signs look positive.
“We have grown rapidly because people have responded positively to our affordable renewable energy provided with great customer service,” says Bulb’s co-founder and chief executive, Hayden Wood.
Bulb operates its renewable energy model by purchasing one unit of green electricity – wind, solar or hydro – for each unit of electricity that it sells. For gas, a harder nut to crack on sustainable energy, it buys one unit of green gas from methane for every 10 sold.
A key differentiator for Bulb since coming to market has been price: where previously renewables cost consumers around 20% more, Bulb’s tariff prices compare favourably. Despite price rises this year forced by a hike in wholesale energy costs, Bulb says its standard tariff is £196 cheaper per year than other providers’ standard tariffs.
I meet Wood this autumn in the buzzy cafe space at Second Home, east London’s uber-hip scale-up location, where Bulb currently occupies the entire top floor. Despite slick surroundings, Wood does not have the air of a startup founder. Soft-spoken and a tad older than millennial, he seems more academic than entrepreneurial.
Wood founded Bulb in 2014 with friend Amit Gudka, bonded by a shared disbelief in the status quo in the UK energy market. “I was a management consultant working at Bain and Amit was working at Barclays. We were friends through a shared love of music.”
The pair had seen the UK energy market up close through their work. They knew it was dominated by a group of very large incumbent suppliers – the big six – and also that those suppliers had done little to innovate for their customers.
“I had worked as a consultant for 10 years and had never seen a company or an industry like it, where old technology was being used and people weren’t thinking about replacing it,” says Wood. “Customers were getting a pretty bad deal, and there was so much opacity in the choices that people had.”
Suddenly it all started to become a much bigger deal than expected. “We just couldn’t resist working on this. We became obsessed with the idea of improving the energy systems, so people could make a more informed choice about where they got their energy from.”
As well as the bad deal for customers and the abject failure to modernise, the UK energy market offered little choice around renewable energy. What drove them to make Bulb’s offer a green one? “I can’t imagine starting an energy company in 2015 and not being renewable,” Wood says. “Fewer than 250,000 homes had switched to renewable energy at that point in the UK.”
“Renewable energy was actually much more expensive for consumers back then – consumer prices were about 20% more. That 20% premium wasn’t being paid to the owners of renewable generation. It was just being pocketed by the retailers.
“If you’re going to protect the planet and have a energy system in the future that doesn’t lead to global warming, you have to find a way for renewable energy to be affordable for everyone. It is the only valid model.”
It’s clear then that the pair started Bulb driven by purpose as well as bottom line. That commitment was confirmed by a decision to become a B Corp, a certification structure that bakes in purpose and sustainability to business aims and operations.
Wood says Bulb wanted to have a positive impact on staff, members, shareholders and environment too, and that being a B Corp just made sense. “It’s really important for us to to state what we stand for. Being part of B Corp makes that something dynamic, so you can look to improve over time.”
Does he see any conflict between that purposeful aim and the need to satisfy shareholders? “I haven’t experienced that,” he says. “What we have found is that the best thing to do is often in the interest of all of our stakeholders.
“I have always been very suspicious of this tension between business and doing good or being sustainable. It’s a broken model to be a good business, do some harm then make up for it in other ways. We would much rather try and do good from the start.”
Wood says being ‘good’ is not the main reason for customers signing up. For him it is “because we are 20% cheaper than the big six and we have got a great customer experience. The magic of what we can do here is you don’t have to trade those things off. You should be able to do both,” he says.
The £60m from DST/Magnetar differs from earlier impact-driven rounds, such as a £5.7m series A round in June last year, supported by impact investment bank ClearlySo.
Wood is clear that the new funding round is in line with Bulb’s mission. “We aim to continue to grow and get more people to switch to renewable energy and reduce carbon emissions. It requires funding to build a business and build awareness for what we are doing,” he says.
The structure of the deal sold the new investors 12.8% of the company – but it keeps Wood and Gudka firmly in charge. “It hasn’t changed the control of the company, and hasn’t changed the board,” he insists.
“DST like us share our vision for supplying homes with renewable energy and helping members reduce their bills if we can. That’s why they chose to invest,” he says. “I had several conversations with the principals of DST about the mission and it’s always something that they have been very positive about. So I don’t see it as a tension.”
The main focus of the new investment is, says Wood, “continuing to invest in great tech, continuing to grow the member base, continuing to focus on core mission of switching as many people to renewable energy and reduce their bills and carbon emissions.”
Was the investment, as was suggested, an alternative to sale or even potential acquisition by one of the big six? “No. That is not something that we have considered,” he says.
It’s clear that the role of digital has been critical to the company’s business model in combating the big six incumbents. How critical has the tech been to growth?
“It is essential. As an energy supplier what is very important is that you measure how much energy your customers are using,” says Wood. “You send them accurate bills, you allow them to manage their energy account in a way that is much more automated.
“There are wafer-thin profit margins in energy and if you have lots of people working on things manually, that’s very expensive.
Happy to confirm there’s no possibility we’ll be selling Bulb. It’s not for sale. We’re only just starting on our mission to make the UK one of the greenest countries on the planet. Why would we stop now? We are only just getting going!
— Hayden Wood (@haydenwd) August 19, 2018
“Our competitors in the big six energy companies have about 300 customers per employee. We have 5000 customers per employee. It is just a different order of magnitude. And the thing that enables that is technology.”
Aside from economies of scale, the tech delivers all-important customer satisfaction, and that comes through a great consumer experience. “The aim is to take the trauma out of the energy experiences people have had in the past,” says Wood. “The technology gives people great self service. It also means that if our members get in contact with us our team has all of the information that they need there to be helpful.”
That helpfulness gives Bulb a major advantage over its incumbent competitors. The big six have performed constantly badly in consumer surveys. Where Npower for instance has a Trustpilot rating of 0.5/10, Bulb’s is 9.4/10.
But it’s not just about customer satisfaction. Key to Bulb’s ability to grow its customer base so fast has been the ease with which they can switch from other providers. ”A lot of people think that sign up is quite complicated,” says Wood. “For us there is a form that takes about two minutes to fill in and that’s all you need to do.”
“Technology is not just about functionality. It’s about communication and getting people familiar with switching. A third of people in the UK have still never switched, so a lot are doing this for the first time. It’s very important to help them through that.”
While Bulb is growing its user numbers extraordinarily quickly, less known is that the company is making a loss. In the six months to March 2017, Bulb posted a loss of £1.98m at Companies House.
One of the strange aspects of modern digital business is that so many of the companies we perceive as successful are in fact loss making. Backed by VC, mega-businesses like Uber are posting huge losses. At Bulb, for all the talk of profit with purpose, the former is proving harder to achieve.
When does Wood think Bulb will reach profitability? “I can’t say really,” he admits. “It all depends on our growth. All the time that we are able to add customers and for them to be per customer economics for them to be profitable, we will continue to do that as quickly as we can. So I can’t say.”
So what are the factors that will take Bulb to profitability then? “It would be a slowing of growth. Basically all the time that we are growing faster than 100% a year, we wouldn’t be making a profit.”
If that is the driver, does the company need to grow at a certain rate, or will that start to tail off? “We don’t need to grow but we want to grow,” says Wood. “That is because we want more people to switch to renewable energy.”
Even if that means profitability is further down the line? “I think it does, yes,” he says. “We would much rather invest in innovation, technology and customer growth. That’s what we are aiming at right now.”
The new investment round has certainly put Bulb on a firmer growth footing. What are Wood’s ambitions? The answer is about a bigger picture. “By getting more people to switch to Bulb, more people switch away from fossil fuel energy to renewable energy. It’s very important for us that we help our members reduce their usage as well. We see this as the first building block to a different energy system in the future.”
One thing that is certain is the growth in the staff team. The firm has now grown to more than 260 people, and Wood estimates that to rise to 600 over the next four years.
Wood is diplomatic, but it’s clear that the firm is outgrowing its Second Home space. “We really love it here,” he says. “I think at some point they might not want us to be taking over the whole building.”
“We will stay in and around Liverpool Street,” he says. “It is really important that we have access to the top tech talent and the great workforce you have in London.”
Wood believes Bulb’s purposeful mission – recognised by DigitalAgenda’s 2017 Impact Awards (pictured) – gives it the edge over others looking for tech talent in the space. “It has made it easier to recruit. Being a purpose-led company, I do think means the quality of people that join us is really high.”
That purposeful commitment is given extra strength by Bulb’s ongoing partnership with the Trees for Cities charity, that sees it receive £2 every time a new customers signs up to Bulb.
So where does the future lie for the UK’s sustainable digital disrupters? Bulb may be high profile, but more than 60 energy startups have launched in the past decade, each eyeing up a slice of the 80% market share still held by the big six providers.
Bristol-based Ovo Energy has been running for a decade and its latest accounts report a £24m profit. Octopus Energy offers a similar renewable product, while Pure Planet has launched a 100% green energy product through an app-only model. It is clear that something of a green gold rush is on – which will help explain Bulb’s desire to acquire as many customers as possible.
Does Wood agree that the £400m valuation means Bulb has a billion-dollar future?
“I couldn’t possibly speculate on whether or not we will be a green unicorn,” insists Wood. “We want to try and get a million homes in the UK to be buying renewable energy. That’s our next milestone. We are a couple of hundred thousand away from that. That is what we are focused on right now.”
But are Wood and Gudka as founders both in it for the long haul? “Every now and again we have a check in with each other to say ‘are we still up for doing this?’ And the answer is always yeah, absolutely.”
Hayden Wood – CV
Chief executive, Bulb
Consultant, Bain & Company
Consultant, Monitor Group.
BSc, economics and economic history, LSE.