Gnest: $3.2 Billion!

Woa!!! Monday’s announcement of Google’s acquisition of Nest represents not only a key inflection point for cleantech, but also speaks volumes on the increasing importance of customers. The $3.2 billion deal marks a significant milestone for the home automation company; one that many believed the cleantech market couldn’t produce.

Here at Cleantech Group, we believe that the cleantech market is essential, massive, vibrant, and desired. Based on data tracked in i3 (such as investment round amounts and participating investors), insider-sourced information reported publicly about various investor returns, and standard venture-round ownership stakes, it looks like Google’s acquisition of Nest represents a 24x multiple on paid-in capital. Our i3 business is about collecting the best data possible and helping corporate teams and venture investors connect with innovation: the fact that a member of the highest level of management at Nest owns and contributes content to Nest’s i3 profile has been truly motivating to my team working day and night on the i3 platform.

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So what can we learn from Nest? Our upcoming Cleantech Forum San Francisco 2014 will discuss just that. Last year, Nest keynoted at the Forum (and went on to win North American Company of the Year at the Global Cleantech 100 Summit and Gala). This year, we’re focusing on accelerating system change through decentralization. For example, what should we do after years of failed energy efficiency programs, countless dollars and waning public interest in energy use? Put it in the hands of the consumer. But don’t just give us anything – this is the age of the iPhone, after all. (It’s no small coincidence that Nest founder, Tony Fadell, brought us the iPod.) Give us something sleek, simple, and smart and you’ve won half the battle.

It’s a magical, difficult journey. Nonetheless, the shift towards a design-centered approach to consumer technologies is exciting. Don’t forget: both the Nest thermostat and combination smoke detector and CO alarm are pieces of hardware. While the market has been focused on capital-light software plays, Nest has built a multi-billion dollar hardware company in four years.

Look at the role big internet companies are starting to play in this market. Apple and Facebook are investing millions of dollars on cleantech innovations. Microsoft is actively exploring fuel cell technologies and other energy efficiency innovations. Clearly, Google thinks it’s on to something with the Nest acquisition. The Google Ventures portfolio also includes Uber, Sidecar, and RelayRides, Clean Power Finance, and the biofuels company Cool Planet Energy Systems (among others).

We’ve been tracking the emergence of the “smart home” over the past few years on our i3 database, and there is no lack of Nest-esque devices that display home energy use or use complex algorithms to analyze how much energy a home uses. But the rise of the conscious home isn’t a one-dimensional story about saving energy. Rather, how can we make a product so compelling that even an oft-forgotten device such as a thermostat can go flying off the shelves for $250? I don’t know about you, but I hate my dishwasher—I hope that’s next on Nest’s roadmap.

Surprisingly, a utility executive recently told us that she often asks her customers, “How do you feel when you open your utility bill?” This consumer-centric focus, teamed with cheaper and better technology, will leave no home unconnected. Pretty soon, consumers and businesses will start wanting these capabilities in buildings, cars and public transportation, and industrial facilities. Who’s going to build Nest for refineries? It’s an exciting time in resource innovation, and the change being created by cleantech is inspiring.