The WimLex Show #3

“The market is completely mixed up, so we’re targeting everybody”

03:30

Willem: What made you so driven to do something about sustainability?

Willem (K.): I did some research for my bachelor thesis in San Francisco, where I picked up on the vibrancy of the entrepreneurial scene. When I moved back to Delft for my masters, I asked myself which topic I was really passionate about, and that was energy itself: if you look at it from a physics perspective, the earth provides energy and we consume energy – it’s simply a matter of balancing the two. Indeed, the amount of energy we get from the sun and other forces is far superior to the amount we consume, so the potential to balance generation and consumption is there: you just have to do it. That is where my drive came from.

Alex: Could you talk to us about your product in a little more detail?

Willem (K.): Sure. The product is a smart, electricity-generating window. So starting with that last characteristic, it’s a window, i.e. it’s fully transparent and has the same insulation values as a double or triple-glazed window. Our solution doesn’t affect the design or functionality of the window itself, but rather adds extra functionality to it. What we do is to integrate solar and sensor technology into the edges of the window, meaning that it’s hidden from sight and the window looks standard, yet positively impacts energy efficiency and comfort.

Alex: Compared to the solar panels that everyone sees on the roofs of houses, how effective is a solar window?

Willem (K.): It’s very difficult to compare the two, because energy production is highly dependent on the angle at which the panel is installed and the position of our windows. Solar panels are generally quite limited in terms of where you can place them because there’s only limited space at the right angle on the roof. In ideal test conditions, though, currently our windows represent around 1/12 of a solar panel; both in research and commercially, we’re now getting close to 1/5 or 1/6: i.e. you would need five or six windows to produce the same amount of electricity as a solar panel. The advantage, however, is that windows can be installed in far more places and our technology means that they are not angle-dependent and can be placed on the north or east-facing side of a building and still produce the same amount of electricity. What is more, thanks to the sensors in our windows, the building overall saves up to 20% of its energy consumption: that is actually where the principle benefit is.

Alex: How does that function work?

Willem (K.): We look at the building as if it were a human and think of the exterior as skin. So just as your skin senses when you need to sweat or when it’s cold, our windows are in contact with the internal and external environment, monitoring temperature, light, and air quality and communicating this data either to a local building management system or with our algorithms. As such, our windows know how the building is doing from an energy perspective and can proactively steer against needless consumption. By way of example, if the window knows that, when the sun hits it at 3pm, it will be too hot two hours later at 5pm and the air conditioning would come on, it can communicate with the AC unit so that it starts cooling earlier while lowering the sun blinds. This intelligent approach is what makes the windows 20% more energy efficient.

08:45

Alex: D you have your own factory?

Willem (K.): We develop everything in house until we have a working prototype, which we then patent; production then takes place at the glass and window manufacturers because all our components are fully integrate-able in existing production lines and supply chains. This allows us to scale up fast, as existing manufacturers assemble and distribute the windows to construction sites; they also give the warranty for the window and the insulation value it offers.

Alex: Are you still in incubation or are you working more in a series-production phase? And can we have some figures to illustrate where you are?

Willem (K.): I’d say we’re at the start of the scale-up phase. Our team is now just shy of 30 members of staff and we’ve just closed our first big contracts, both in renovation and construction, both in commercial and residential real-estate. This shows our full potential. We’ve also completed a funding round which will allow us to grow and internationalise.

Alex:  Was it hard to secure funding for this type of hardware-heavy business?

Willem (K.): Yes, it was hard, especially if you’re picky, like we are. So we took six months to map the funding available and think about who it should come from. Industry? Institutional investors? Grants and subsidies? It was hard to find the right partners, but we’re really happy that we took the time.

Willem: What kind of partners did you opt for in the end?

Willem (K.): On the one hand, we have a consortium of real estate titans, primarily Dutch, but increasingly internationally orientated, too.

(Willem asks for specific names, and Willem (K.) runs through some of the individual investors from the property and construction sectors. Following on from that, Willem explains the second pillar of investment: the European Innovation Committee, from which they have a phase II SME grant.)

13:10

Alex: And what about the business case? Do the windows cover their own higher cost as opposed to normal windows?

Willem (K.): They do. Our pledge is that they will never cost more than twice the price of normal windows. At the beginning, we made the case based on energy production, but now, we stress all three factors: electricity generation, energy efficiency, and comfort. To quantify these benefits we work with certifications like BREEAM and the “Well certificate”. Just to give you an impression of how important this all is: we are now spending 90% of our time inside buildings, so the way we experience being in buildings is very important to a lot of people – and especially to real-estate developers, for whom efficiency and comfort represent a return on investment in that they increase the value per metre squared.

Alex: Okay, so let’s imagine that someone is putting up an office building like the one we’re in and decides to spend 200k on your windows instead of 100k on normal windows. How long does it take for them to recoup their costs?

Willem (K.): Six to eight years on average.

Alex: That’s fast! Faster than the investment case for solar panels in any case.

Willem: Yes, they normally take 20 years to pay for themselves.

Willem (K.) shares his ambitious goals to make the windows even speedier at repaying excess outlay – and, in the long term, the next standard in windows. He stresses that he doesn’t see his windows in competition with, but rather in addition to solar panels. Alex asks for a more detailed description of the solar element, which Willem (K.) explains is down the side of the glass window.)

17:10

Willem: You mentioned that you had already acquired some residential and commercial property clients. Why did they opt for your windows?

Willem (K.): We went out touting for business and sold the first windows off the back of the story, more than anything. For the bigger contracts now, though, it really is about the payback time. We can demonstrate that our windows are investments, whereas windows previously have been a sunk cost. The 100k you mentioned for normal windows? As a developer, the only place you see that again is in the value of the real estate. If we take 200k and say that it repays itself several times over in 20 years, then that’s a real investment.

Willem: I’m actually building myself a new house at the moment. If I had known about PHYSEE at the time, I would have asked the developers to give me an investment option for the windows. Do you intend to acquire customers through consumer demand? Or are you targeting project developers directly?

Willem (K.): The market is completely mixed up, so we’re targeting everybody: tenants, owners, architects, developers, builders, contractors, governments… We need them to want it, because it’s a new product in a conservative industry. That’s why we partnered with the manufacturers so that they can give a warranty. It’s a trust issue.

Willem: Which stakeholders have been the most receptive to date?

Willem (K.): Real-estate developers. They are happy to take the risk, and for them it is a way to distinguish themselves from other developers and win tendering processes.

(Willem asks which projects are good case studies, and discussion to turns to “the most sustainable office building in the world”, The Edge. Willem (K.) explains how he ended up supplying windows to the new Edge project in Amsterdam. One issue in the construction industry is, according to Willem (K.), that the lessons from projects like this are not shared across the industry.)

22:00

Alex: From an online business perspective, you’re in the rather boring area of making stuff. If I were an investor, I’d be interested in what other kind of data-based business you could develop: gathering and sharing information on households, for instance? Perhaps even selling them something like Google Nest? After, what you’re implementing is a digital device which is offering you exclusive information on housing, health… To me, it smells like a data platform!

Willem (K.): Absolutely, and that’s one of the reasons I’m talking to you today: I don’t know much about this side of things at all, but as a company, it’s clear to us that data will be a big driver for our future growth. We provide solar to generate electricity, but the whole value proposition is now built around integrating solar into sensors so that every building gets it own sensory network collating highly relevant data – both from the inside, as you mentioned, but also from the outside. So the more buildings which are equipped with our network, the more conclusions can be withdrawn with regards to air pollution, temperature, heating and cooling devices. There could be a meta-level of data with real value to governments, for instance, or to owners of large real-estate portfolios, e.g. for predictive maintenance.

Willem: Do you already have this data stored in one central place?

Willem (K.): Yes, all our windows communicate with our servers, and we interpret the data, using our own weather models and algorithms to make the windows as effective as possible for our clients. The data also flows into product development because we can test and evaluate our products at work, using the results to improve the next generation of smart windows.

Willem: Have you got any examples of things you’ve discovered from the data?

Alex: Let me guess: people don’t open their windows often enough?

Willem (K.):  It’s a catch 22, really, because the more data you have, the more information you can provide. That’s actually how we came to adding sensors to our windows: in our interactions with clients, they were asking us questions like “How much electricity is this window actually producing? Do they produce more when it’s cloudy?” We realised that we could just add sensors. Now our windows are producing data that owners can use to make their buildings perform better – and a next level of data which we are working towards. This is where we need the industry to tell us what they want to know: air quality readings, for instance, or motion sensors showing how many people are using which rooms. Theoretically, they could be linked up so that the building says “Hey, the air quality is better in this room? Why don’t some of you move over there?”

(Alex explains why he sees PR as being a key plank in customer acquisition for this type of product and asks whether establishing the benefits of the product through publicity is a priority for PHYSEE. Also, he asks, in view of the difficulties they are having investing their capital, surely banks would be willing to finance next generation windows? Willem(K.) replies that scaling up was one of the reasons that the company has partnered ING Real-Estate Finance.

After that, discussion turns to the advantages of Delft, where PHYSEE is based: it has one of the best technical universities in the Netherlands which attracts international talent and provides a strong pool of candidates. Willem (K.) sees no immediate need to move to one of the country’s bigger cities. The focus will be on internationalisation via Germany and the UK instead.)

31:00

Alex: When I think about all of the potential IoT use cases involving your windows, it strikes me that product engineering will, to a large degree, actually mean software engineering. Do you already have developers on your team?

Willem (K.): Two – and we’re currently looking for a third one.

Alex: And is Delft a good location to recruit developers?

Willem (K.): It’s sufficient, and we can cover both hardware and software here; but I’m sure Amsterdam and Rotterdam have equally good software engineers.

Willem: Look at TamTam, the founding company of Dept. They started in Delft, too, and have grown to around 150 people – and are still in the city. And finding developers is extremely hard in the Netherlands right now, whether in Delft or in the big cities. Moving to Rotterdam or Amsterdam is unlikely to solve the issue, so it might be better to think about near-shoring or attracting talent from other markets. At Dept., we brought in people from Portugal, for example.

Alex: The reason I’m raising this issue is because I generally ask our podcasts guests where they get their customers from, how much they spend, and how loyal they are. Now, windows are not the kind of products that private individuals buy very frequently. So software is one potential source of revenue, although I suppose you can also sell upgraded parts – or even move into other products such as doors?

Willem (K.): We offer multiple functionalities to which our windows can be connected – ventilation, blinds, lighting. But I completely agree with you: recurring revenue streams are attractive, and all of them are based on software.

(Willem asks for some detail on how consumers can access their data. Willem (K.) replies that PHYSEE offers an API interface and is already working with energy companies to supply smart meters with data. He outlines planned projects with large-scale clients such as the city swimming baths.)

34:50

Alex: One thing I often ask myself is whether it’s actually all that difficult to integrate solar panels into devices. You mentioned sun blinds, and they are needed when the sun is too strong, so that’s a perfect use case for an integrated solar panel. Is that hard to do?

Willem (K.): Yes, it is actually quite hard to integrate solar, but I agree with you that there are lots of applications that look so obvious that it seems like it should be simple. To give you an idea, though: we’ve been engineering our products for four years and we are only now getting into the stage where they are certified, scalable, and affordable. And we had a head start because we cumulatively had put in nine or ten years of fundamental physics research. That was our stepping stone – and it also makes it harder for others to imitate us!

Alex: Another customer acquisition question: would there be any value to you in using online marketplaces such as Amazon, eBay, or Alibaba to reach end customers?

Willem (K.): In the future, absolutely? But for now, the economic case is to be found in large projects in which the energy savings really account for something. As I mentioned earlier, though, in two or three years from now, the payback time will drop to a couple of years, and from that point onwards, there would a case for pushing the product on consumer marketplaces. Then it’s simply a matter of people replacing their windows and deciding that they also want the kind of attached services we could provide in the home environment (checking for water damage by measuring air humidity, for instance, monitoring the air quality of bedrooms, or simply increasing comfort).

Willem: Looking at your growth potential, you are currently focussing on new builds, but the biggest market is of course to be found in existing buildings: people refurbishing their homes, businesses and institutions retrofitting their offices and facilities...

Willem (K.): Indeed, and up to now, we’ve had a 50/50 split between renovation and new-build business. Usually, in refurbishment, the outer shell is the first thing to go because it’s in the worst state: the foundation is generally solid, but renovation is usually carried out precisely because of issues such as energy efficiency or the comfort factor. It’s often a case of replacing single-pane windows which can barely be opened anymore with double or triple-glazed windows featuring our technology.

Willem: And so you market specifically towards this kind of project?

Willem (K.): Yes, we define our business using four categories: renovation and construction, residential and commercial. Any mix between those is possible.

Willem: And where are you currently seeing the most movement?

Willem (K.): Residential renovations, oddly enough. In the beginning, we expected the dynamism to come from commercial new-build, but now we’re doing a big project in The Hague – multi-tenant residential refurbishment. We’re also developing a new residential high-rise project in the northern part of Amsterdam, though. Then we have the Tropicana swimming baths renovation project in Delft...

Willem: So you have examples in all four dimensions. But what the biggest challenges you are facing right now?

Willem (K.): As always in business: a lack of time, money, and people!

(The trio laugh and, as the podcast draws towards its close, Alex asks Willem (K.) to say what he is most looking forward to in 2019. In response, he lists the large-scale projects in major cities in which PHYSEE windows will play a part: they will be, he says, iconic landmarks equipped with the company’s solution to which it can refer as reference projects. He finishes by explaining the “PHYSEEability check” in which the company carries out a full engineering analysis of development projects and shows what value it can add – and invites listeners of the podcast to contact him if they are interested. Willem regrets that he didn’t find out about PHYSEE windows until *after* building started on his home.)