Interview with Priyanka Duvvuru, S2G Investments

Catherine: Hi, I’m Catherine McLean, Founder and CEO of Dylan Green. Today I have with me Priyanka Duvvuru. She is the principal at S2G Investments, and we’re here in gloomy New York City.

Priyanka: I know. On a very cold rainy day. And below 10 degrees.

Catherine: Exactly. Yeah, it’s like a balmy 30. So thanks for joining me. Appreciate it. If you could introduce yourself and tell us a bit about your role and what your focus is at the energy in the energy team at S2G, that would be great.

Priyanka: Sure. So as you mentioned, on the investments team at S2G on the energy team, maybe just to set the stage of what S2G is. So S2G Investments is a multi-asset class platform. We invest across three primary sectors, energy, food and agriculture, and oceans. We primarily deploy capital out of two strategies. A venture and growth strategy, mainly focused on scaling technologies and businesses that are solving kind of large addressable solutions or addressable markets. And then a special opportunity strategy that is providing credit and infrastructure focused capital to businesses that are looking to scale with flexible solutions for their businesses. And so really how we think about it is a toolkit, right? So we can work with companies to create fit for purpose solutions for their growth. A little bit on my background, I joined the S2G team about four years ago, prior to S2G was at Stone Peak Partners, which is a large infrastructure fund based here in New York, investing primarily across renewables, energy transition and water infrastructure. And then prior to Stone Peak was at Cleanline Energy, which is a long distance merchant transmission developer, developing products that were connecting renewables to population centers. And so I’ve kind of come at this opportunity set in the renewables energy transition space from both the operator side and the investing side.
And hopefully has made me a better investor over time.

Catherine: And you said you’re originally from Houston?

Priyanka: Originally from Houston, yeah. Went to Rice University, was an engineer by degree, but I’d like to say not smart enough to actually be an engineer.

Catherine: It’s a good foundation.

Priyanka: Yes, a good foundation for thinking about problems and the kind of critical infrastructure and solutions that we need to power our economy.

Catherine: Right, You started, as you mentioned, on the development side before moving into investing. How has that development experience helped shape the way you underwrite risk and evaluate founders?

Priyanka: Yeah, it’s a good question. I think that my development experience provides me with a really helpful perspective of not only understanding the underlying kind of processes, having done them myself, but what questions to ask in a diligence process, right? You know, a lot of times as investors, we’re looking at 100 page slide decks, explaining different projects, statuses and stages and business projects and stages and appreciating kind of what that means on paper versus in practice and how these processes, whether they’re permitting processes or interconnection processes, how those work. And so it allows me to kind of get under the hood with founders and management teams from a first conversation, which I think also helps build credibility, right? I think a lot of the feedback I receive from the developers we work with, right? We’re invested in a number of development platforms and they like someone who can be in the sandbox with them and help them think through some of these problems and also understand development risk, right? And development risk is binary at times. And I think that depending on how you’re trained or your experience at having done it and been in their seat, I think it helps with that relationship as well and makes me a better board member, a better investor, and then also just helping these companies scale and grow.

Catherine: We want to talk next about a case study, Urbant. So S2G invested in Urbant, which is I think pretty well known in the industry. It was a great success story. Urbant recently entered into a $325 million agreement to be acquired by EITRON. What specifically gave you the conviction in Urbant at a time of investment? What does that outcome signal about how utilities are valuing AI-driven grid resilience?

Priyanka: Yeah, it’s a good question. So for your listeners who are unfamiliar with Urbant, it’s an AI software platform that really is designed to help serve utilities in addressing worker safety, disaster kind of recovery and relief to help not only prevent, but also respond to those types of natural disasters. Our investment was really predicated on our belief that utilities are increasingly dealing with these existential environmental concerns, such as wildfires, increased storm impacts. And that’s creating a need to know when those events are going to occur and then how do they best manage reliability in the context of those events. And so at the time of the investment in Urbant, we obviously had a belief in that macro thesis and thematic. And we’re really impressed not only with how the Urbant team was gaining traction in the market with existing utilities, but also the CEO, Corey, his kind of vision for the company and his ability to kind of usher and drive that business into the phase of growth. And we believe, as you mentioned, that the acquisition by ITRON is really a validation of not only that thesis, but ITRON and the market’s view that resiliency is becoming increasingly important to utilities, given the complexity of the grid and increased larger loads and instability generally. And so I think we’re excited to see that outcome for the team there and hope there’s more outcomes like that and exits for companies in this space.

Catherine: Yeah. So next I want to talk about your broader portfolio. Beyond Urbant, can you share several other energy portfolio companies you’re excited about and the specific problem that you’re trying to solve with each?

Priyanka: Yeah. So maybe I’ll start with one of our companies, ANA. They are a battery hybrid generator business, really focused on leveraging this kind of fit for purpose technology called the eBoss to serve use cases that are traditional, everything from data centers to construction, to mining, to oil and gas even. And what’s unique about them is they’re emblematic of our kind of broader investment thesis of how do you solve an economic problem with a solution that’s not trying to transform, necessarily industry, but making an incremental change. And so they have a TCO, total cost of ownership that is a no brainer. And so companies that are adopting this technology are doing so not only because they want to go green and lower emissions and have a safer and quieter kind of piece of equipment, but also because it saves fuel costs, right? And we’ve been really kind of impressed with their ability to successfully scale to kind of national customers across the United States. And the real value of this kind of solution is it’s fit for purpose for the industry without kind of asking it to make a sweeping change. In addition to that, we’re investors in a development platform, a distributed generation and community solar and storage platform called 38 Degrees North based out of Sausalito, California. The company is focused on really targeting community solar and behind the meter distributed generation solutions to bring a lower cost sustainable source of electricity to communities in those markets under existing regulatory frameworks and in power markets where cost of power is rising. And we believe that while there’s a space for utility scale, there’s an opportunity as an investor on the distributed generation side of the market. And our investment there was really predicated on the team. The three partners that founded 38 Degrees North business are folks that have 20 plus year careers in the solar industry. There’s some of what I like to call the solar mafia.
And we backed the team. They had an incredible track record and have been able to take that model, that business model and really scale it, focus really on how do we work and partner with local developers to aggregate assets with kind of a lean corporate organizational structure and take a very project finance, structured finance lens to creating a unit economic first approach to building a renewables development company. And I think there’s still a lot of kind of macro dynamics at play within this market, but really excited about how that business is positioned.
And we actually brought in climate adaptive infrastructure in Cambridge as equity capital into that platform in the middle of last year. And so feel really good about kind of where that business is today in the context of the current macro and the balance sheet. They have to tackle the opportunity ahead of them.

Catherine: It’s interesting. You mentioned teams a lot. So but it’s still a people business at the end of the day, which is important to remember. And then AI filled world.

Priyanka: 100%. I think there’s so many factors that we evaluate as we’re making investments. But as I look at the opportunities that one, we’ve historically had more success with, but also that have either navigated to an exit or are on a trajectory that will be a good outcome economically for our investors is the ones where the macro story and strategy and thesis was strong, where there was an economically viable solution. And then you had a team that not only had the experience and the expertise to appreciate the problem at hand, but the execution capabilities actually deliver a business plan. And those three things, as I think about it, aren’t true of every business and are probably the top three components of our underwriting philosophy. The last company I’ll mention, because I just think what they’re doing is so unique in the context of the market and the current moment is a business called ORGV. They are manufacturing fully electric class eight trucks. So these are, I think the highest order of trucks mainly focused on applications in industrial yards, distribution centers and ports. And what’s unique about this business, right? I think we’ve watched the electric vehicle OEM ecosystem expand and contract massively in the last decade. This business has been largely founder owned and run for over a decade profitable that entire time. And it’s all predicated on the fact that they have a product that has a valuable kind of total cost of ownership model, right? A payback period of three years and an uptime of 97 to 99%. And they have a decade worth of operational data and hundreds of thousands of miles driven to demonstrate the operational capabilities of the product. And so I think it’s a, for me, a testament to the economic solution will continue to win regardless of it’s clean, if it’s low emission, and we’ve been really excited to see the progress that that business has made in the context of what we are seeing is a massive pullback in the broader electric vehicle market.

Catherine: I’m so pleased to hear a success story in that market because there are some wonderful candidates from the EV space that are on the market that struggle because they want to go into solar or they want to go into another technology and they’re so pigeonholed into EV. So it’s good to know that there are some success stories in the electric vehicle space. So what actually scales across those companies? What common characteristics signal real scalability and long-term value?

Priyanka: That’s a really interesting question. Yeah. I mean, I would say we touched on it a little bit, but I think it’s this, it’s this combination of factors, right? It’s an economically viable product, right? So not focused on environmental attributes, a green premium. It’s a solution that’s disrupting the existing market that may be green, that may be sustainable, or more green or more sustainable, right? Not thinking about things in terms of black and white and, and doing so in a way that it’s a no brainer to adopt. And whether that’s an actual product or technology or an innovative business model, right? I think those are, those two things can, can be different and also go hand in hand depending on the product or the technology. And I think ANA is a great example and an orange of that, that opportunity set. The second is companies that are solving real physical bottlenecks in the economy, right? And so Urbant is a great example, right? As this, the grid has grown and as weather events and natural disasters have increased and reliability and resilience has become increasingly important, right? You need tools to better manage the energy infrastructure, right? And because there’s finite amount of it, right? As we think about our existing grid as an example, right? Transmission continues to be a massive bottleneck. We’ve only built, I think, about 900 miles of transmission in the last kind of year or so, and we need 5,000 a year to actually be able to meet the needs of a growing kind of demand side of the grid. And so how, what are the tools, whether that’s software, hardware that are able to kind of fundamentally unlock those physical bottlenecks to really expand our economy, grow GDP, all of these macroeconomic kind of factors. And then that’s really where it comes down to what are these fit for purpose solutions, right? And we say that, what does that mean? It means ultimately appreciating that in the space that we operate, it’s very, everything comes back to assets, right? We spend time investing, I think, in a little bit, maybe just to build on what I talked about earlier in terms of our strategy. We invest everywhere from software to hardware to combination, innovative business models, everything in between. But at the end of the day, the energy space, unlike the traditional technology space, everything comes back down to assets, right? If you have a software that’s optimizing batteries, if the batteries aren’t installed, you don’t have a software to optimize them, right? And I think like appreciating that dynamic is critical to understand how solutions actually can scale, right? Going back to the question, if you don’t appreciate where those bottlenecks are in that process of scaling, whether it’s regulatory, whether it’s a physical bottleneck, or whether it’s ultimately the size of the market itself, right? Understanding those pieces is critical as we look at that.

Catherine: And if the market is ready at that time.

Priyanka: And it’s a timing. Yeah, timing is a huge piece. And we’ve seen that across not only our portfolio, but opportunities we’ve looked at over the years. Timing is everything.

Catherine: Yeah, yeah. What areas of the energy transition do you believe are overcapitalized? And which remain overlooked?

Priyanka: Overcapitalized? I don’t know if overcapitalized would be the word I’d use. I think we operate in a really capital intensive industry. And so the overcapitalization is really like what some people may consider overcapitalization is really a hedge to running out of runway, right? And so really, to me, what is overcapitalization mean? It means how do you capitalize businesses at valuations- if that makes sense. And so the business may not be overcapitalized, it just may not be valued. It may be valued higher to allow for that capital to be injected into the business. And not that valuation may or may not be based on fundamentals. And I think, as kind of going back to my earlier, which is fundamentally, energy assets are energy assets, energy companies will trade at energy company valuation. So there are very few examples of companies that have transacted or traded in the billions of dollars in this market, right, in the private markets, or even in the public markets, there’s a handful of examples. And so I think as we think about underwriting, and as we think about capitalizing businesses, it’s as an investor, there is room for flex, right? But there’s certain points at which the valuation that you need to believe to enter at whatever valuation to get the return that makes sense, right? Like working back from that is the constant math that every investor is doing. And so I think it’s less about overcapitalizing the businesses and more about in what sectors are we seeing massive valuation hype, right? In order to support businesses that are heavily capital intensive. Examples include, I think we’re seeing a lot of capital flow into nuclear, as an example, right? Whether that’s it’s really the moonshot type sectors within the broader space where they’re highly capital intensive, but that makes sense, right? The capital is needed, but the valuations in order to deploy that capital to make sense for the management teams and the founders is where kind of the rubber will ultimately meet the road, I think, over time.

Catherine: When you say nuclear, are you talking about SMR?

Priyanka: SMRs, I think, early fusion technologies. And I think there’s a need for that capital, right? I think that every type of capital exists in this market for a reason, right? Like early stage venture money exists for a reason. Where there becomes mismatches is that capital structure, is that deal structure the right structure for long-term and sustainable growth for that industry, right? And I think time will tell, right? I think same thing with geothermal actually is a very good example, right? There’s been a tremendous amount of capital that has flooded to that side of the market in a venture growth equity context, right? That may be the right business model for those businesses, but a lot of those technology companies are also having to develop assets, right? And that’s a very capital-intensive exercise in and of itself as well, like project development as we know from the more renewables context. And so I think it’ll be really interesting to see how these markets and opportunities kind of continue to evolve and what’s the right fit for purpose capital for them. In terms of what’s overlooked, I’ll tell you what I think is sexy, but everyone else thinks is unsexy, right?
What I think is most interesting is really the, I operate in like a traditional venture and growth ecosystem, right? And there’s always a new sexy technology or founder that’s spun out of a really interesting success story that highly backable, interesting idea. And there’s a lot of excitement, right, around those opportunities. On the other end of the spectrum, there are the family-run businesses, right, that have been around for decades that maybe have been chugging along, maybe they even have cashflow, right? But they haven’t actually injected capital into the business to grow that are serving these really non-regulation, regulatory-defined kind of pockets of the market, whether that’s supply chain. We’re seeing this a lot actually in the utility services business. I don’t know if you’ve been following, there’s actually been quite a bit private capital that’s gone into kind of these more services types businesses. These are companies that have been in families for decades, right? And a lot of times they’re selling out to a big private equity shop or a mid-market private equity kind of operator. I think there’s an opportunity, right? And I think it’s overlooked for those operators to say, instead of giving up that value, instead of getting out of these businesses, why not take on a partner like S2G, take on growth capital, right, in a minority position where I continue to kind of largely control the business in the direction of the company, but I have the capital then go take advantage of this opportunity. And that’s not just true of the utility services sector, I think that’s true of a lot of other kind of really unsexy pockets of this market where really interesting growth can occur because of broader macro trends that haven’t seen one growth capital historically or haven’t been part of kind of the focus because there’s a lot of other areas to spend time on.

Catherine: Reminds me of Landman.

Priyanka: Love Landman.

Catherine: That was his thesis, yeah, right? He was like, go after these small people who have this land, it’s not generating much, it’s generating some, but not much, and invest, right? It’s Landman.

Priyanka: Yeah, yeah, I like it.

Catherine: It’s like their favorite job. What experience or capabilities are truly essential to succeed in energy investing?

Priyanka: Oh, I don’t know if I’m the right person to answer that question.

Catherine: You’re not a finished product?

Priyanka: Well, I’m definitely not a finished product, I’ll say that. I’ll tell you what I look up to, I think that’s probably like, I don’t think that I have achieved success in my career yet. I think that’s an evolutionary exercise. But I think the things that I strive to gain over time, I think a focus on unit economics and fundamentals, market fundamentals, right? So not just financial fundamentals, but deeply, deeply understanding the markets that we invest in. And I think having been an operator for a number of years helps with that I have deep appreciation, understanding not only of power markets, but development and how this ecosystem that we invest across and in kind of has been developed and how we continue to like how it continues to evolve. I think that’s one of the coolest things about the energy space, that it’s never stagnant. It’s always changing. And so I think the ability to kind of appreciate the history and then build on that knowledge over time will help you appreciate cycles, right? Because everything that this market has experienced is cycles, right? Like I’ll use natural gas as an example, right? If you look over the last decade, there’s a number of investors who made investments in natural gas projects and developers. And at the time, it was a contrarian bet, right? The energy transition was happening and natural gas, we weren’t going to need it anymore, right? Lo and behold, here we are, right? Like a lot of those investors have made tremendous amount of money for their LPs by taking what at the time was seen to contrarian bet, but was reflective of their understanding and appreciation of the cycles that exist in this market and the patience to ride out the cycles. And so I think being able to take the step back, one, being at a place where there’s patient capital, right? Is obviously a key part of that, but being able to appreciate the context of decades as opposed to the moment and the hype, I think is like a very critical component of what we do. Or at least I strive to constantly create that context for myself and remember it as we’re looking at investments, I think.
The other piece of success is like appreciating, understanding the supply chains and the systems that will result in potential outcomes, right? And thinking about risk on the spectrum, right? I think we have a tendency as investors to look at a base case, an upside case, and a downside case and think that those are kind of, and we need that, right? Like it’s part of our job, but I think our base cases are never right, right? And the spectrum of outcomes is dispersed. And I think we’re increasingly getting the tools for us to be able to evaluate those outcomes and really excited for the period of time we’re in with AI and the tools that are available to investors to continue to become more adept at understanding the dispersion of outcomes.

Catherine: I just was literally going to ask you that because AI is really, we’re embracing it, and it’s really transforming our business. It truly must be such an enormous tool to you.

Priyanka: Oh my gosh, I know. It’s incredible. I feel like I was talking to one of the members and the associates on my team recently, and there are things that like when I was doing this job early on in my career, it’s like it took me days to learn about a new industry or company they have at their fingertips within 30 minutes can have a baseline understanding based on everything on the internet, cited, sourced, yeah, in less than an hour, right? And I think that that makes us as a team more efficient, right? And I use those tools myself to kind of we look at such a spectrum of businesses that I think those tools are incredibly valuable and our processes have just become so incredibly more efficient. The amount of information we have at our fingertips to help make decisions has also been incredibly valuable. I think that’s probably maybe the third point, right? It’s like what does success look like? It’s embracing the change, right?

Catherine: Well thank you so much for taking the time to speak with us, coming up from Brooklym.

Priyanka: Yeah, of course. Anytime. It was a good conversation and thank you.