Internal Documentation

Recap: How we plan to make money.

September 14, 2024 (Review of Week EOY-16)

Fundraising is some circle of hell, but it does force you to do one thing: think a LOT about whether the story of the business makes sense. So it’s probably no coincidence that Marc and I talked a lot about Revenue strategy this week.

This week, Marc will be sharing an update on the Revenue strategy for the next 15 months. As you consider his Revenue update, I think it would be useful to keep the bigger story in mind:

As you all know, multifamily renovations is a big business: 33 million homes housing 1/4 of US households and spending $65 billion annually on renovations. But it’s a vertical within a vertical (Real Estate) and fragmented (NY metro is 10% of national market, all other markets are substantially smaller). So to get scale, we plan to own large (dominant) share of the top ~25 markets. “Own” means that a meaningful share of all of the retrofits that happen in that market transact on Momentum and we earn transactional revenue. Doing that takes two steps:

  1. Step 1 is we have to have a pipeline of transactions, so we have to be involved in project origination. We’ve been building that pipeline by selling subscriptions to portfolio owners and to players who like us require generating retrofit transactions to be successful (green lenders, subsidy programs, and government programs).
  2. Step 2 is we have to convert some portion of those transactions into transaction fees by delivering value to those individual projects. We’ve been figuring out how to do that through the LL97 PECM contracting program in NYC, and we’ve learned that by standardizing and aggregating, we can create a lot of value (procurement in days instead of weeks, identifying actual market price of retrofit scopes).

Our GTM is a two-pronged strategy: 1. Dominate NYC by being part of the machinery for the public policy-driven retrofit programs where the retrofit transactions originate (HPD, ConEd, Accelerator); 2. Get a large national footprint quickly by supporting GGRF lending programs. And then we still have to turn all of that pipeline into transactional revenue through software.

One thing you may notice here is that owner subscriptions like Related’s seem to take a back seat. Don’t be thrown off by this – the way that we get the pipeline is by delivering value to the pre-construction users (owners, lenders, service providers). So, although the future revenue from subscriptions much smaller than transactions, if we don’t own the hearts and minds of owners, there is no transaction revenue either.

What we’re doing has a lot of moving parts. Personally, I don’t think you have to understand all of it – Marc and I certainly don’t fully grokk it all the time. It is a feature of leadership at all levels that a leader must make decisions with the context that they have access to. So as we go along, please ask questions – discussion and debate is how we build institutional knowledge. And always keep in mind that whatever picture we have at any given time is likely incomplete! But we expect all of you to lead from your seats with the context that you have.

Metrics

  • Unique Buildings: 5588 (Aug)
  • Annual Run Rate: $1.3m (unchanged)
  • Monthly net burn: $60k (averaged over last 3 months)
  • 2024 Transaction fees to date: $6,257 (unchanged)
  • Outstanding invoices as of today: $73,648 (-$84K week over week)

Last Week’s Highlights

  • We have a ton of work to get our NY-centric Momentum chrysalis to metamorphose into a national butterfly, and to make sure we stay on track we kicked in a weekly series of “going national” internal demos to showcase our work-in-progress Massachusetts data in action and get feedback on direction.
  • At a meeting convened by the NYC Mayor’s Office to discuss solutions that can help increase the pace of construction in buildings subject to Local Law 97, Carleton Energy Consulting, a busy service provider in the market and one of the early firms bidding in our LL97 PECM program, called out the work we’re doing packaging measures and buildings together as a good example of something that’s doing that!
  • B Corp is moving along - we have been assigned a verification analyst and we will have our first interview in a couple of weeks. The verification stage takes up to three months and B Corp uses independent third parties to verify our social and environmental performance. If improvement is needed (i.e. our score dips below the required 80), we will have another three months to do so. If not, we move to official B Corp certification.

Any missing highlights? Please share in Slack comments.

Watch List

  1. 2024 Revenue Our revenue projection for 2024 was back-loaded, which we knew was a risk. Marc is working on a revised revenue expectation for Q4, and Erika will need to work out how much of the other grant line items are going to be received, so that we can a clear expense budget for the rest of the year.
  2. Pace of product delivery continues to be a challenge. We have a lot in early 2025 that depends on more streamlined and faster product delivery. Jason has been working on a unified list.
  3. Onboarding is improving, but still has a ways to go.
  4. Recruiting like the song says, “always on my mind”! Hopefully also on your mind!
  5. Focus we always have a lot going on, especially with external partnerships. Having a lot that competes for our attention is a risk (even if we seem to do OK balancing things).

On Deck for This Week

Please Leave Feedback

Please note your reaction to this update in the Slack channel. It helps us to know what is resonating, what is unclear, etc. Thanks!

  • What are your highlights / lowlights?
  • Did we miss a highlight? Something else you want to react to?

Comments

Naina (Generalist) Sep 16th at 8:08 AM

This is a really useful insight into how we make money - I never seem to fully grasp it but this is getting me there! the national demos are very exciting! We can start showcasing all the work we’re doing on that front

Bomee Sep 16th at 10:21 AM

Oops - link to Radar is missing: https://docs.google.com/spreadsheets/d/14jn9wo4wPSf1bPwxYOMP8IdwhninSVQBSLWr2C3PImQ/edit?gid=686557216#gid=686557216

@François (HOE) @Jason (BuildSci Lead) what’s on deck for product this week? Ditto @Marc (CRO) what’s on deck for Revenue this week?

Marc (CRO) Sep 16th at 9:08 PM

Revenue update:

  1. I am not on track for delivering on the revenue projections from the quarterly goals that were set at the start of the year.
  2. The primary reason for the significant gap is that I assumed large third party managers who manage hundreds of buildings would be willing to stick their necks out as fiduciaries responsible for carbon compliance liabilities and push their co-op board customers to sign up for Momentum subscriptions at ~$1,000 per building per year.
  3. (While most expenses require board approval, PM’s have the authority to approve expenses <$2,500 — and there is a precedent for one other SaaS offering being rolled out nearly universal by PM’s across their portfolios
  4. But instead, these managers have been unwilling to sign off on a Momentum subscription fee unless a particular building owner customer first evaluates Momentum and then says “yes”. *
  5. But Cadence direct sales to hundreds of individual buildings is untenable.
  6. In investor language, there is not an existing “wallet” for decarb planning – and in hindsight other SaaS solution rolled out universally across these portfolios for another use case took a bunch of years to get to that position.
  7. With the two largest 3rd party managers in NYC, conversations have shifted to a corporate subscription to Momentum for the third party manager that allows a small number of their internal staff to be power users and use Momentum to proactively differentiate their offering and identify projects for revenue opportunities that both Cadence and the manager can participate in.
  8. So now I am chasing 35k/year subscriptions for these respective portfolios instead of ~300K/year subscriptions if every individual building was a customer.
  9. I also initiated a contractor bidding program earlier in the year – and @Kate (Customer Success) and @Martine (Sales) did a lot of work to bring it to life. I did not originally make significant financial projections for this work but as the year progressed and we started to get some early traction, it was my hope that revenue from this offering would offset
  10. But after a post labor day outreach push, transactional revenue has proven to be slower going.
  11. As a result of these learnings, I developed this doc resetting the revenue team goals to make sure we are building on learnings to date and working backwards from our ambitious goals for 2026. We have a ton of learnings to build on but that is another doc that I won’t bore you with.
  12. As an aside… bringing in the two largest NY managers as subscription customers (one of whom is also the largest manager in North America) would put 1,000+ buildings on our platform in NY alone – and could yield the majority of the $3-4M transactional pipeline targeted for this sector in 2026 per the reset doc.
  13. To that end…had a very positive conversation with that largest manager in North America this AM who told me that “we are very close” to closing on a subscription agreement to start in January for their nyc buildings – she just wants some tweaks to the product first and ability to show her logo on Momentum :)
  14. So my answer to the question of what’s on deck for Revenue this week…. is … refocusing….

Revenue Team Goals Update

Jason (BuildSci Lead) Sep 16th at 9:30 PM

For product work this week: Getting generic projects and new dashboard closer to ready Updating suggested scopes and adding some new envelope measures to support going national