The affiliated funds of the Appalachian Investors Alliance are always looking for key characteristics in potential portfolio companies: sound company foundation, strong leadership, a well-designed product with clear advantages in the market, IP, and at least one sales channel ready to enter market. These characteristics represent the three types of risk that investors, even Impact Investors, must understand in order to commit the time and resources necessary to create a sustainable company: structural risk, execution risk, and market acceptance risk. These are difficult criteria to find despite all the great ideas that seek investment capital annually in the region.
Mountain State Capital identified Conservation Labs, Inc. as a company that stood this test of diligence. The Company possessed all these characteristics. It was well structured. The Founders had filed clear and valuable intellectual property. They had accepted prior capital, including several strategic investors, in a way that smoothly led to the current financing round. Thus, the structural risk appeared to be low.
Mountain State further identified a strong team of experienced entrepreneurs. Many of the Leadership Team had prior entrepreneurial experience and all were accomplished experts in their respective fields. Equally important is the mission of the company. Conservation Labs has both a social and financial mission. They were driven to do the right thing and make money doing it. Conservation Labs enables cost effective and sustainable water use, which is a $70B problem in the US annually. They developed a unique and patented solution that addresses this problem for commercial and multifamily residential clients that sets them apart from their competition.
Their first product, H2know(TM), attaches externally to a pipe as it enters a property and delivers accurate water usage, classification of events, real-time leak detection, energy use associated with water, and custom conservation recommendations. Their important differentiators are: ease of installation (easy DIY installation, no plumber required), focus on adding value for the customer through an intuitive dashboard, and the fact they can monitor water flow and “learn” the patterns of specific water fixture use without expensive sensors or penetrating the water pipe of the building. Their low cost, low power, highly accurate solution means they can launch a battery-operated version next, something their competitors will be highly unlikely to accomplish. And, the product has a number of uses beyond water in the built environment. Finally, the product had all its required regulatory approvals and was ready to launch in the market immediately. Thus, the execution risk appeared to be low.
It is easy to become enamored with exciting technology and a great team. But, it is the market acceptance risk that is usually the deciding factor in the success of a given product. The Leadership Team had already secured a white label distributor agreement with a guaranteed minimum performance over a five-year period representing millions of dollars. This indicated the market adoption risk was low and the company should be able to launch their flagship product with confidence in their go-to-market strategy and revenue projections.
Many of the affiliated funds of the AIA elected to invest in Conservation Labs with Mountain State Capital based on this diligence process. The company will use the invested capital to deliver its first products to market and perfect its battery-operated next generation product, for which there are many additional market opportunities. The company is located in Brownsville, PA and has every intention of remaining in the community that fostered its formation and growth.
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