By: Gigaom
January 29, 2013 at 16:19 PM EST
How to keep innovation alive in the smart grid
Keeping the innovation ecosystem alive in the smart grid will depend on the big players like Silver Spring taking an active role working with startups.

The harsh reality of the smart grid sector is that making an actual sale of networking technology, analytics tools or devices to utilities  — not a pilot trial — is hard and takes a really long time. Companies that are lucky enough to test out their tech with utilities in trials aren’t guaranteed to get a commercial deal, despite the time and money invested.

That’s one of the reasons why some smart grid startups struggle and are sold off for smaller amounts than they or their investors had originally hoped, are forced to dramatically downsize, or eventually fold. There’s a chasm between when a startup launches and raises venture funding, and when a company reaches velocity with utility sales. That Valley of Death can take years of long utility sales cycles to cross, and many startups don’t make it through.

lean startupBut as the smart grid industry matures, there’s players that have emerged on the other side of the Valley of Death that can help out the younger startups looking to develop innovation in the ecosystem. It’s one of the ways that real innovation can actually survive in a sector that is so conservative and slow moving.

Silver Spring Networks is one of these players. This week at Distributech, the massive power grid conference in San Diego, Silver Spring announced that it’s reselling startup AutoGrid System’s software, which helps utilities quickly deploy energy efficiency programs for its customers. To utilities that may not be familiar or comfortable with the two-year-old venture-backed startup, Silver Spring’s partnership gives AutoGrid some more weight.

Silver Spring, which itself was VC-backed and founded in 2002, works with a lot of startup and big company partners. It announced ten new partnerships at Distributech this week, and more than 30 of its partners are showing off tech at the conference this week.

For Silver Spring, working with the latest innovative startups is a good way to keep on the cutting edge and also see what is out there to either learn from or even acquire. Of course, this is a common practice in the internet ecosystem, where companies like Google, Facebook or Cisco, routinely keep an eye on the hot new VC-backed players. But the smart grid industry isn’t as mature and progressive, so this can be a relatively rare phenomenon.

powergrid3The more traditional power grid firms are more commonly doing this now, too. Siemens, ABB, and GE all have various startup-focused initiatives. The older IT companies — like a Cisco or an Oracle — that are looking to get into the utility sector, naturally do this as well, as they’re used to doing it with their core IT divisions.

But more of these large key players are needed to take a more active role in shepherding and acquiring the most promising startups. It’ll be needed to keep innovation alive in the smart grid over the next few years.

If there aren’t success stories for these startups, they’ll be decidedly less innovation coming into the space. 2012 was a year that saw a smaller amount of venture capital deals for smart grid companies. According to a report from Mercom, there were 40 smart grid startup investment deals in 2012, compared to 50 deals in 2011. The overall funding by dollar amount was higher in 2012 than 2011, but that was skewed by a large fund raise from Alarm.com, which is more of a home automation and security company than a smart grid startup. There were only 66 investors that put money into smart grid startups in 2012, down from 92 investors in 2011.

If innovation doesn’t come from the younger startups, it’ll have to come from within the big power companies. But we all know how well most huge companies innovate.

Image courtesy of Shutterstock/Dusit.




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