Startup Series: Sealed
Today’s guest is Lauren Salz, co-founder and CEO of Sealed, which modernizes houses with the latest HVAC, weatherproofing and smart home technology, while covering the upfront cost to homeowners.
Home efficiency and electrification is a critical front for combating climate change. Incentives for residential heat pump installation are one of the big winners of the Inflation Reduction Act.The often overlooked but critical steps of weatherizing homes via better insulation and sealing is also key to reducing energy consumption. Sealed has been understanding consumer motivations for home efficiency upgrades for nearly a decade. They've learned what consumers care about, what they are concerned about, and what triggers them to invest significant capital into updating their home's heating and cooling infrastructure. And no surprise, climate change and emissions reduction still does not rate as a top motivator. So what does? And are we at the point where these lower emission technologies are just generally better for home heating and cooling? Spoiler alert: the answer is yes.
Cody and Lauren have a great chat about how she came to work on the problem of home efficiency updates, how they assess a home's needs at Sealed and how this compares to the normal way of doing things. We also talk about the innovative model Sealed is using to help consumers finance projects via energy cost savings, how they work with contractors, and how the IRA promises to accelerate this space even more. And most importantly, we hear from Lauren on how to reach consumers and what their motivations are.
Get connected:
Cody's Twitter
Lauren’s Twitter / Sealed Twitter
MCJ Podcast / Collective
*You can also reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded on September 14, 2022.
In this episode, we cover:
[3:24] Lauren's journey
[6:05] Her early days of figuring out home energy efficiency and her company’s origin story
[11:57] An overview of Sealed
[19:12] Value propositions that are most popular for consumers
[21:33] Process for how Sealed designs custom solutions for each home
[25:54] The company’s performance-based financing model
[31:16] How customers and contractors learn about Sealed's solution
[35:46] The company's role in assessing contractor work
[37:50] Benefits from the Inflation Reduction Act
[45:41] Common changes people need to make with insulation
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Jason Jacobs (00:01):
Hello everyone, this is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Sims.
Jason Jacobs (00:05):
And welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (00:26):
We appreciate you tuning in, sharing this episode and if you feel like it leaving us a review to help more people find out about us so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guest is Lauren Salz, co-founder and CEO of Sealed, which modernizes houses with the latest HVAC, weatherproofing and Smart Home technology and covers the upfront cost to homeowners of doing so. Home efficiency and electrification are critical front for combating climate change. Incentives for residential heat pump installation are one of the big winners of the Inflation Reduction Act in the United States. And the often overlooked but critical steps of weatherizing homes via better insulation and ceiling is also key to reducing energy consumption. I was looking forward to talking with Lauren at Sealed, as they have been understanding consumer motivations for home efficiency upgrades for nearly a decade. They recently announced a series B round of funding that includes the likes of Fifth Wall Climate Tech, Robert Downey Jr's Footprint Coalition, City Rock Venture Partners, Cyrus Capital and Keyframe Capital to help set them up for continued growth.
(01:37):
They've learned what consumers care about, what consumers are concerned about and what triggers them to invest significant capital into updating or upgrading their homes, heating and cooling infrastructure. And no surprise, climate change and emissions reduction still does not rate as a top motivator, so what does? And are we at the point where these lower emission technologies are just generally better for home heating and cooling? Spoiler alert, the answer is yes. We have a great chat about how Lauren came to work on the problem of home efficiency updates, what she's learned along the way, how they assess a home's need at Sealed, and how this compares to the normal way of doing things. The innovative model they have for helping consumers finance projects via energy cost savings, how they work with contractors and how the Inflation Reduction Act promises to accelerate this space even more in the coming years. And most importantly, we hear from her on how to reach consumers and what their motivations are. Lauren, welcome to the show.
Lauren Salz (02:39):
Thanks for having me here today, Cody.
Cody Simms (02:41):
Well, I can't wait to hear what you're building at Sealed. I have a confession to make myself, which is I went through an entire home energy retrofit about a year and a half ago, so I maybe know enough to be dangerous here.
Lauren Salz (02:56):
I would love to hear about your experience.
Cody Simms (02:58):
Oh sure, yeah. We can turn the mic around for sure. But maybe first start with how you got into this space. You've been building this company now for almost a decade, I'm sure it's the entire world of home energy efficiency has changed dramatically. So taking us back to 2013 when you were starting Sealed, what prompted you to dive in the first place?
Lauren Salz (03:24):
Yeah, that's a great question and I'll say I kind of fell into the climate space. I was kind of in accident almost. I had left my job at McKinsey and I was meeting different startup founders or people in the startup ecosystem in New York. And I quickly realized why most startups fail. Typically, they lock the right person or the right person with the right idea or the market's not big enough. And then I ended up meeting my now co-founder, Andy Frank, and that was back in 2013. And at the time I didn't know very much about energy markets, energy efficiency, climate generally. I've always liked the environment and was always a vegetarian and didn't like to use too much carbon, but it wasn't really a big focus or passion of mine when I ended up meeting Andy and that's when I first started to learn about, in particular the energy efficiency market.
(04:17):
And what really struck me that was pretty wild and then this had struck Andy as well, is that homes contribute to around 20% of greenhouse gas emissions in the US and the hardware already exists to decarbonize homes and it's hardware that's extremely effective in terms of ROI, in terms of solving a clear customer pain point and it's good for the environment and saw really low customer adoption. And so that really intrigued me, but I'll say it's not like I have a long history in climate or energy efficiency I kind of fell into by accident and I was so intrigued with this problem that I decided I wanted to dedicate the next step in my career to it.
Cody Simms (04:56):
What did the accidental falling into it entail?
Lauren Salz (04:59):
I met Andy.
Cody Simms (05:00):
Okay, so unpack that for us a little bit more?
Lauren Salz (05:04):
Yeah, I had tried a variety of things over the course of my very short career at that point. I had a lot of internships and different types of jobs and everything I kind of did. I knew that I really wasn't meant to be doing that. And so I thought the next thing is maybe I'm meant to be an entrepreneur or work for an early stage company. It's kind of the next thing I was going to try. And I had a mentor McKinsey who kind of encouraged me to go down that route. And I went on Angels and I was talking to all types of people with all different types of ideas and eCommerce or construction and all these different fields. And then actually Andy was the only person I met who was in what at the time was called Clean Tech. I know now we've rebranded as Climate Tech, but he was the only person that space I talked to and I was intrigued right away and learned as much as I could about the space before deciding to start something with him.
Cody Simms (05:58):
And what did those early days of figuring out what the problem might look like that you were interested in solving entail?
Lauren Salz (06:05):
Also, the very, very early days. I think actually those are some of the most fun days because you haven't raised capital yet, there's no pressure, you can really be exploratory about different ideas and strategies. And our original thesis around Sealed is that the key reason why people weren't making these improvements on their own is because they didn't believe that the savings were real. And that was our initial thesis. We kind of tried to validate it through surveys, but also we did a lot of talking to people live in Penn Station or Bryant Park even got kicked out of Penn Station at one point for bothering too many people and just really talking to a lot of homeowners and a lot of contractors. And that was actually a really fun stage. Now I'll say the really tough part of Sealed was really the four years following that, which was figuring out a product that solved that problem and seeing if it worked.
(07:02):
And I'll say our initial thesis wasn't wrong. It is true that a barrier was that people didn't believe that the energy savings were real from these improvements. But there was two other barriers that we were missing. And so what that meant is we launched a product that was different than our current and we basically launched this guaranteed savings product where our customer still had to do their own financing and find their own contractor. And we basically were almost like an insurance company where we would guarantee a certain amount of energy savings on their bill. I'll say the problem is that it's not that it failed, it kind of worked. It was a mediocre product. We acquired customers, they liked it, but it wasn't really flying off the shelves and we didn't feel like it moved the needle on adoption very much. But I'll say those mediocre ideas are the toughest ones to give up on.
Cody Simms (07:53):
And how did you decide between whether you should focus on consumer education and essentially sales as opposed to contractor education and sales? I have to admit, when I started my home efficiency journey because my hot water heater copped out and I was like, "Ah crap, I need a new hot water heater." I called five plumbers. I knew I wanted to do heat pump, I didn't know much about it because I knew I wanted to do it because I work in climate, but I didn't know much about it. I called five different plumbers and said I want to do an electric water heater.
(08:25):
I didn't even know if I used the word heat pump. And they're like, "No you don't, they're terrible. We'll just do a tank less gas, I'll have it up by four o'clock today." And then I finally did some research and I said, "No, I want a heat pump." And they didn't... Half of them didn't even know what I was talking about, much less how to install it. And this was in 2020 or 2021. So back to my question of consumer education versus contractor education, how did you decide which pathway to focus on? Or maybe it was both?
Lauren Salz (08:53):
Initially we planned to sell our product through contractors. And I'll say again, that's something that worked kind of both with our guaranteed savings product, but eventually when we rolled out our financial product where we cover the upfront cost and get paid back through the energy reductions over time. So the original size for both of those was to go through contractors. But what we found is we just didn't have enough control over the message or the design of the projects and that's how we ended up eventually shifting to direct to consumer. But I mean I think that's a really good point and I think if you did the same project a year and a half later you had run into a very similar problem.
Cody Simms (09:33):
And looking back at 2013 or 2014 or 2015, any of those early years, how has the technology changed since you were starting and also how has the conversation changed?
Lauren Salz (09:51):
So the technology has changed a little bit. So on the weatherization side air and the solution is pretty similar to what it was back in 2013 and 2014 and I think the spray foam is a little bit better than it was. On the heat pumps side, there's been actually some really big breakthroughs in heat pump technology over the past five years where it used to be that heat pumps were better suited to warm weather environments. They weren't equipped to deal with truly cold weather, they couldn't deal with it being zero degrees outside. And that's something that's really changed and now actually heat pumps are a great option for people in all climates.
Cody Simms (10:24):
I see so much misinformation in social media around that issue still.
Lauren Salz (10:30):
And it's because that used to be the case and there was a big heat pump push, I don't know, back 30 years ago and then people had a bad experience and so now everyone thinks that they don't work well when it's a different type of heat pump that you're installing these days. So yes, there's a lot of misinformation about that out there. And I think kind of something you mentioned earlier about the education hurdle between a customer versus a contractor, it's a similar battle except for, I'll say that on the contractor side, people like to install what they're used to installing because that's how they train, that's what they're most comfortable with the equipment.
(11:05):
Well they have relationships with different equipment suppliers and it can be very sticky and difficult to get people to convert from one technology to another. And that's why when a typical homeowner calls up their local contractor when their current heating system breaks exactly what you said, they're like, "Oh, I'll just get you the newer version of what whatever you currently have." And I think that's very unfortunate. I think that's not very good for the climate because every year heating systems are breaking or as you're seeing in places like Northern California or the Pacific Northwest where people who didn't have the AC before are now getting AC and they're not getting heat pumps and I think that's a really big problem.
Cody Simms (11:46):
What are the key home upgrades you do with Sealed today? So maybe let's fast forward to where you are now and maybe what is Sealed and what are you focused on helping drive conversion of?
Lauren Salz (11:57):
Yeah, so we're focused on making it easy and affordable for people to decarbonize their homes, but let me tell you that consumers don't think about decarbonizing their homes. They think about making their homes more comfortable, more efficient, healthier, more convenient. Those are the things that customers care about and therefore those are things that Sealed cares about. The types of hardware that we are typically installing, some combination of weatherization and HVAC upgrades, so air steel installation that's kind of like bread and butter. Everyone needs air steeling and installation if they haven't had a professionally installed in the past decade.
(12:30):
And then some people, if you have an aging heating or cooling system, we typically recommend getting a heat pump. But we didn't start doing that until around, I think it was in early 2020 we started selling heat pumps because we also had misconceptions about the technology from back when we were doing our original research back in 2013 and then after doing a lot of research, were said this is a technology that we can stand behind. But let me tell you, people shouldn't get a heat pump if their homes are not already weatherized.
(13:03):
And I think this is a big mistake that people are doing that today. But I think a big driver behind that is because it's typically a different contractor that's doing weatherization versus installing a heat pump. And it can be very overwhelming for a homeowner to cobble together two or sometimes three different contractors are needed to get everything done. And that's why most people end up doing nothing where they just end up replacing their old gas furnace.
Cody Simms (13:32):
And how do you help people find the balance of what order in which they should do these things? And if you look at the envelope of the house today or the infrastructure of the house today beyond the hardware. So you look at the duct work or you look at the windows or you look at some of these other aspects of the house that are really important but can get really expensive really fast. How do you help people make the right decisions on structuring a project that may be a multi-year project to tackle?
Lauren Salz (14:07):
So the most important thing is to understand the most important things to the cost [inaudible 00:14:11], what is really bothering them? Is it that the master bedroom is freezing during the winter? Is it that their heating system is making noise at night and it's 30 years old and could die at any point? It's really about learning what's most important to the customer, but also agnostic of any information that their heating system is about to break. We almost always recommend doing weatherization before getting a heat pump, mainly because one, you'll have to buy a bigger, more expensive heat pump if your home is not weatherized to heat the same amount of condition space.
(14:48):
And also if you get a heat pump and your home is not weatherized, it can kind of exacerbate some of the comfort issues that you're experiencing. So, that's what we tend to recommend. But really if it's time for someone to get the heating system replaced, we still recommend overall for them to do everything at once. Also, something like insulation air, so that stuff is very high ROI on its face typically that is paying back pretty quickly. And so we just recommend everyone do everything at one time.
Cody Simms (15:17):
When we did our project, we ended up biting off a huge project. We ended up doing duct work and insulation and the heat pump. And the reason for that was we wanted to bury the duct work under the insulation so that it stays properly insulated year round. But it was really interesting because my contractor's great, he was a highly recommend him if you're in southern California, they're called the Building Doctors, they do the full end to end home efficiency work and specifically focus on the climate aspects of the installation of these projects.
(15:45):
But I was trying to ask him around payback period and he said, "Look, I'm going to be honest with you, you're in Southern California, the biggest bang for the buck you're getting on payback is the insulation work we're doing. It's not the heat pump work we're doing, it's not the duct work we're doing. That all is making everything a more climate friendly and reducing your gas footprint and you're going to get efficiency gains from it, but your installation was so terrible that this is actually where you're going to see the biggest bang for your buck and that's actually the lowest cost part of the whole project." So, that to me kind of blew my mind. And I'm guessing a lot of people you talk to don't necessarily think about these really low tech changes that are really important for their homes?
Lauren Salz (16:28):
Yes. And by the way, when people are uncomfortable in their home, everyone thinks they need new windows. And that's one of the lowest ROI things you can do from an energy savings perspective can be very high ROI from an aesthetics point of view. I'm not going to argue with new windows can look very beautiful, but yes, insulation, air shielding, even living in somewhere like Southern California where the weather is not that extreme, really is very high ROI both from a financial point of view but also from a quality of life point of view. And the thing is when you're thinking about something like a heat pump or any kind of HVAC system, its fundamental purpose is to heat and cool your home. And sometimes that means that if you're installing gas furnace, you wouldn't be like, "What's the payback on this?" You just need it fundamentally to heat your home. And so depending on the climate, depending on whether someone's coming off using gas or oil, it could take a really long time for a heat pump to payback if you really thought about it in that lens.
Cody Simms (17:31):
Yeah, I also felt like to some extent it was future proofing the technology of my home. Meaning if I think about the long term equity value of my home, it's probably boosting that because now my home has the technology that all new homes are going to be built with going forward as opposed to using legacy 20th century technology?
Lauren Salz (17:49):
Yes. And we see this in the northeast where there's still millions of homes that are heated with oil or propane. It's getting much more difficult to sell your home if you heat with oil or propane or even have an oil tank that buried somewhere on your property. And I guess you probably don't see this so much in Southern California, but here northeast, there's literally oil tracks that go around and pump oil into your basement. That's the way that it works. And sometimes people run out of oil, so it didn't get refilled quickly enough and it was really cold. And think about what an antiquated way that is to heat your home. And the other thing too, which most people don't think too much about with oil and gas heating is it's literally combustion, right? You're starting a fire in your home and then blowing it around your home and I just don't think it's as clean or as healthy as a heat pump for example, which is just moving the heat around the home.
Cody Simms (18:43):
How would you rate in general from a consumer perspective, the value props? I see we've talked about three so far. We've talked about climate and emissions, we've talked about energy savings and I guess we talked about for comfort and we've talked about now health. If there is such thing as the average consumer, which of those currently are most popular and do you see one changing in terms of its importance at a faster rate than others?
Lauren Salz (19:12):
Well, I'll be honest with you, I'll put climate at the bottom and that is not the primary motivating force for our customers, at least where we're operating. I think that's a good thing because I never like to count on people's altruism or care for the climate to drive major purchasing decisions for things that are very expensive. I think people actually put, I think convenience and quality of life at the top. One thing that people don't talk about with heat pumps is how quiet they are makes the same amount of sound as your refrigerator, but you can think about the heat pump as basically working a large refrigerator basically.
(19:12):
Cody Simms (20:26):
How do you assess what makes a good home or a bad home for Sealed in particular, in terms of you being the appropriate service provider for them?
Lauren Salz (20:35):
So one, people need to have a problem. If you're saying that "My home is super comfortable and my heating system, my heating systems are brand new, but I'm just interested in reducing my car footprint." That's not really a great customer for Sealed or really any other contractor. You should have a problem that you're looking to solve. Also, our sweet spot for homes are homes built before 2000. Before there was a lot of building regulations around this type of stuff and single family homeowners is who we're primarily working with as well. But I think that because we're custom designing scopes for each home, usually we can find something to do for most homes that's going to benefit them.
Cody Simms (21:19):
And talk to me about that process. I know when I did it, we had someone come into our house, they did blower tests, they did infrared readings of our home, et cetera. Is all of that required today or can you do most things remotely through software?
Lauren Salz (21:33):
Our process is very different. I'll say back in the day we did all the things you're talking about, the infrared cameras through the phone, the blower drawer task, all that stuff. And it was super time consuming and people had to take time off from work. And I think the big breakthrough we had, was back in 2018 where we said "We're going to do all this stuff over the phone and through technology." And so actually our process is filling out some stuff online, taking photos of your home, and then we're evaluating those and then we're presenting someone with a proposal. But everything's done online. We do send a contractor out before the actual installation to make sure there's nothing that we missed or making sure there's no mold or asbestos problems. But we're not doing your classic free home energy audit stuff that people have been around the industry for a while might be familiar with.
Cody Simms (22:22):
And does that mean the homeowners calling through the attic taking pictures of their installation and duct work in order to get a quote from you?
Lauren Salz (22:29):
No, it doesn't have to be that in depth. You can just climb at the ladder and take a couple of photos with your phone. You don't actually have to crawl around. The other thing is that every home is a little bit unique, but there's definitely different archetypes at homes fall under and different types of work that people have had done. And depending on the year, we can make a pretty educated guess on what it's going to look like up there. And then again, we have that step before the actual installation to make sure that we're not wrong about it, but in the vast majority of cases we've accurately scoped without ever setting foot in your home.
Cody Simms (23:06):
And so then you give them a loose project proposal and then have someone come actually to the home to talk the customer through questions and then verify the proposal is that how it works?
Lauren Salz (23:18):
I'll say we give a pretty specific project proposal and then someone comes out to verify. And the other thing then this is we're just looking for pieces of the puzzle and there's different ways that we get it. So one way is through photos, we're also collecting people's energy usage and based on different patterns that we see in their historical energy usage, we can help diagnose some of the problems they're experiencing as well. But the biggest piece of information we get is just from talking to the customers, "What problems are you having?" So this is a very classic problem is the master bedroom is really cold during the winter and the most typical reason for this is a lot of master bedrooms sit over the garage and the garage ceiling is uninsulated. So, that's just an example of a common problem that we can diagnose without having to someone to take a picture of what their garage ceiling looks like.
Cody Simms (24:09):
Sounds like I'm starting to understand how the name of the company came about.
Lauren Salz (24:13):
Yes, definitely. And then also we are able to get sealed.com, so I think that would be a tougher thing to get these days that back in actually 2014 is [inaudible 00:24:23] bought the demand.
Cody Simms (24:26):
That's awesome. We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin Lu (24:32):
Hey folks, Yin here, a partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019, have since then grown to 2000 members globally. Each week we're inspired by people who join with differing backgrounds and perspectives. And while those perspectives are different, what we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
(25:02):
Some awesome initiatives have come out of the community. A number of founding teams I've met, nonprofits have been established, A bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming like monthly Women In Climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. So whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (25:33):
All right. Back to the show. Maybe walk us through then the financing model that you have, which I find incredibly unique in terms of how you're enabling customers and contractors to pay for the work that is being done. And it seems like it creates really good alignment between all the parties involved.
Lauren Salz (25:54):
I'll say the financing piece is kind of at the heart of what we do because if you think about it, a customer has to trust us at a very deep level to design a scope for them and choose a contractor to do a really expensive project with them. And the reason why they trust us is because we're using our capital to cover the upfront costs and we only get paid back based on the performance of the work that's being done. And so there's this deep alignment of interest for us to find the best contractors to put the best equipment in and have the scope that's really designed for that particular customer. And the other thing is energy savings and single family homes, it's actually very difficult to predict that on an individual basis, but we have the advantage, we compare you with all of your neighbors and we're holding a portfolio of homes and we can feel very confident in the accuracy of our predictions over a portfolio, kind of like an insurance type model.
Cody Simms (26:52):
Maybe talk us through how the financing model then works for you all?
Lauren Salz (26:57):
So we look at an individual home, we're getting the energy usage history, and then we're comparing it to thousands of homes that are similar to that home. And through that we're putting in the different types of improvements that we're recommending and then we can figure out how much energy someone's going to be saving over the course of several years. And then that's how we're able to cover the upfront cost. And if you can think about it, we'll just put some dollar examples on it. It's actually would be like a kilowatt hours, but say someone's using a hundred kilowatt hours a month before and now they're using 80 kilowatt hours. They're paying for the 80 kilowatt hours to their utility and then they pay Sealed the 20 kilowatt hour difference. And then on the flip side, let's say the product is not performing that well and they're using 95 kilowatt hours versus a hundred Sealed only gets five kilowatt hours of revenue.
Cody Simms (27:55):
Are you actually paying the utility bill and taking the difference out for the consumer or is it just roughly your bills are reducing by X? And so we're going to assume your monthly payment is going to be roughly X so that it feels net equal to you?
Lauren Salz (28:13):
Oh, so customers are still paying their utility bill directly and a separate bill to Sealed, but we're not guessing on weather utility bills every month. We're looking at their metered energy usage and [inaudible 00:28:24] that way. It's not an estimate because then it really wouldn't be performance based if we just said, "You're supposed to save approximate this much." It might as well be a loan at that point.
Cody Simms (28:35):
So their Sealed payment may fluctuate month to month based on the utility bill where you're truly just trying to charge them the difference in their prior savings or their prior bill versus the savings that they have post project?
Lauren Salz (28:50):
Exactly.
Cody Simms (28:51):
And those have to be multi-decade sort of payback periods, I'm guessing, is that right?
Lauren Salz (28:57):
So yeah, our default contract length is 20 years. Are you familiar with the Solar PPA?
Cody Simms (29:03):
I am loosely, but explain it for everybody. Just...
Lauren Salz (29:05):
Okay. So-
Cody Simms (29:06):
Doesn't matter if I am.
Lauren Salz (29:08):
Yeah, so I think the solar space is a really interesting parallel to energy efficiency and electrification because solar panels are also not a new technology, but they really struggled with customer adoption. And what really helped things take off is that kind of in the late two thousands, Solar City and Sun Run came out with these residential solar PPAs where they said, "You don't have to trust that these solar panels are going to generate electricity on your rooftop. Instead, you can just purchase electricity from the solar panels that we're going to pay to install and it's going to be at a lower rate than what your utility is charging you." And so I think we're very fortunate that the solar PPA came before us because the financial markets are already familiar with this performance based structure on top of consumer credit risk.
Cody Simms (29:58):
And like the solar PPA market then I assume, if you move or sell the house before you've paid off that project, you're still responsible for that loan. Presumably most people are going to then take the proceeds from their house and pay off the loan with that house.
Lauren Salz (30:13):
That's what most people do. You can also transfer it to the new homeowner or you can keep it yourselves and it switches to a fixed monthly payment. There's a variety of options, but most people, as you said, just kind of use equity in their home to prepay us.
Cody Simms (30:26):
I'm curious if you all have looked at all into pace type financing where you can actually try to finance through property tax credits, so that the cost actually stays with the property as opposed to with the individual's credit?
Lauren Salz (30:41):
Yeah, I'm familiar with pays. I think it's run into some regulatory things. It's kind of state by state and I think different target market than we have. It would be difficult to pair that with performance based financing, which is kind of the bread and butter of what we do. We're pretty focused on that.
Cody Simms (30:58):
That makes sense. And then talk about how you're actually acquiring customers. Are people going online and searching for "My master bedroom is too cold." How are they finding you versus just going to Yelp or Angie's List or something and finding an HVAC contractor?
Lauren Salz (31:16):
Yeah, so I'll say there's two types of all assignment customers into two types. One type is that they have a problem and they have some kind of idea of what the solution is, and they're the ones who are on Google search searching for, "I need a new heating system." Or "I need installation." And we'll pop up. We have a lot of content on our websites. We tend to rank pretty well for those search terms. And then a second category of customers who kind of, they have a problem, but it's not their top five things that they're worried about and they really have no idea what the solutions are. And those are people we're targeting by getting out in front of them through YouTube videos or Instagram or we have a lot of great partnerships with utilities who are sending emails kind of describing what we do. And then at this point too, we have higher concentrations in certain neighborhoods. A lot of people will hear about us from their neighbor or a family member.
Cody Simms (32:10):
So, that's on the consumer side. And then on the contractor side, most of these contractors today are having to... Actually maybe walk me through how the contractor market works. Are most contractors, I think of a plumber as you look them up on Yelp and you find a plumber. But are HVAC installers different than the people who, if you are searching on Yelp for HVAC, someone comes to your hous. Are they basically a salesperson and then they then work with subcontractors to do the installation work? What does that market look like today?
Lauren Salz (32:42):
That's a great question. So typically for HVAC and installation, there's these smaller local contractors who both have install crews and they have sales people or a lot of times they call them assessors. Who are coming out to the home and doing this free home energy audit, the way you describe with the blower drawer and for our camera. So it's the same company that does both in most cases. So I'll say contractors hear about us honestly through a lot of the same channels that consumers hear about us because contractors are also consumers. And then a lot of people end up being interested in working or partnering with us. And then also we're doing our own research on who the top contractors in the area are. And we kind of hear that through word of mouth. We're also looking at different review sites, we're talking to customers who have had this work done, but honestly it's a very similar process to consumers.
Cody Simms (33:36):
And so then if they start working with you a lot then can get rid of that assessor side of the business that they do and just basically use you for all their legion? Is that the idea?
Lauren Salz (33:47):
Correct. And I'll say most of our contractor partners, they still get a fair amount of their own business, especially because traditionally contractors, they don't have whole sales and marketing operations typically. Or if they do it's very small. And so most contractors are getting most of their customers through word of mouth or referrals. So, that still remains an element of their business. But what Sealed does is kind of make it easy for them to expand their business and make it bigger. I'll say, especially during, a lot of contractors have very seasonal businesses and they typically have a few months during the spring or fall that are just really tough. And that's where Sealed can really come in and help because we have pretty consistent pipeline throughout the year.
Cody Simms (34:32):
So if I'm a contractor, I'm thinking, "Oh, this company is reaching out to me and what I'm seeing is, A, they have a really professional marketing presence and know how to acquire customers. And B, they've got this interesting way of financing the work that I otherwise don't have to do. And so I have to help all my customers think about how they're going to use a HELOC or they're going to go get a bank loan or do some other thing to finance the project that they're trying to do, whereas Sealed is bringing that to the table for me." Is that correct?
Lauren Salz (35:04):
Yes. And then also a big part of the value prop is they know that if they're sending someone to the home, it's extremely likely that, that will turn into paid work for them. Versus, I don't know what the typical close rate are for assessors, but I think they're probably going out to five or six homes and then one of them is going to turn into project versus most Sealed projects that get to the stage where we're sending out an installer to check it out before the installation. The likelihood of that becoming a project are extremely high.
Cody Simms (35:34):
And then what's your role in validating the quality of said contractor? Because your brand is sitting across all these folks, but you don't have control over the work that they're doing?
Lauren Salz (35:46):
That's correct. And I'll say that's one of the biggest benefits of working with Sealed. So a homeowner, they're going to have no idea if heat pump has been correctly installed or even if the entire scope of work has actually been completed. People just have no idea or they won't know until they have a problem later basically. And so what Sealed does is we carefully verify that everything has been done according to Sealed standards. We're reviewing photos of every single part of the project and we have our engine, or we need to use these photos and we need to review them before we pay the installer. And we're experts at this stuff. And so there's a very high likelihood that the project will be done correctly just because even contractors know that we're going to be reviewing things kind of line by line and then we'll send people back out if we're not satisfied with the quality of the work.
Cody Simms (36:39):
And then shifting a little bit to your own operations and financing, then are you all needing to have... We could talk about the funding you've raised and all that, but are you also needing access to a fairly significant line of credit in order to pay the contractors up front but then not collect cash from the consumers for a 20 year period?
Lauren Salz (36:57):
So we leverage Debt Project Finance to finance the projects and we use our equity capital to fund the operations and growth of the company. And that's a model that's worked really well for us because debt capital, the high credit worthy portfolio is a lot less expensive for us than venture capital that has a very high expectation of what the returns are going to be.
Cody Simms (37:21):
Has the interest rates shifting been difficult for the business so far?
Lauren Salz (37:27):
I'll say we built the business when there were higher interest rates than what we have today. So our business continues to do very well.
Cody Simms (37:35):
Great. And let's talk about how... Can't talk about heat pumps and home efficiency without talking about the Inflation Reduction Act at this point. So how do you expect the new law as it is now to benefit your business?
Lauren Salz (37:50):
I couldn't be more excited about the Inflation Reduction Act and it was such a great summer surprise because us and everyone else did not see it coming. So there's $9 billion of incentives for electrification and energy efficiency and that doesn't include this $2,000 annual recurring tax credit for these types of improvements. So say I'm excited about it for a variety of reasons. I think the number one reason I'm excited, and this seems to be a little bit of a... Might be a little bit of a strange thing, but most people don't know what he pumps at installation are. And I think that one of the biggest risks to making progress on the climate side of things for single family homes is everyone's going to get AC's and they're not going to get heat pumps. So I actually think the awareness, the president during his press conference when he signed the bill mentioned heat pumps.
(38:44):
He's talking about weatherization in the State Of Union. So those are the really big sea changes for the industry. The other thing that really excited about, I think it's the right incentive levels that are going to spur customer adoption but don't crowd out private market actors and doesn't lead to the government kind of wasting money. And it's kind of designed in a really smart way. So the homes part of the bill, it's around four and a half billion dollars. There's higher incentive levels for measures that save more energy and that's the way that things should be done. It's truly performance based program. You get paid higher incentive levels if you're getting paid based on the energy performance and I could be more excited about it.
Cody Simms (39:23):
By you, that means you the installer? Okay.
Lauren Salz (39:26):
Yeah. And then basically you're incentivized to do the higher ROI items and installing most efficient systems versus something that's less efficient.
Cody Simms (39:35):
So just at a high level, there's ongoing tax credits for consumers who have these technologies installed both at the, I think a direct pay at the point of installation and then an ongoing tax credit. Is that correct?
Lauren Salz (39:46):
So, what I mean by an ongoing tax credit is that there's this up to $2,000 tax credit, but it's not one time use. Every year you can use it again to get something new. And I think that's really smart because this way there's new technology that comes out you might want to install that wasn't available the year before. Then you're incentivized, you kind of have this $2,000 a year annual budget...
Cody Simms (40:11):
Because, I have a $500 lifetime creditor-
Lauren Salz (40:14):
It was $300 lifetime or something like that. And I'll say with something blunt, the kind of level manage to, with 300 tax credit, I'll say for companies like ours, it's not even necessarily worth it to educate customers or spend that much money educating customers. $2000 is definitely worth spending and investing money and educating consumers about that.
Cody Simms (40:34):
That's great. And so then in addition to the consumer benefit then there are also benefits that hit the installers that incentivize you to install higher efficiency appliances and home upgrades?
Lauren Salz (40:46):
Exactly. And then the other exciting thing about the bill is I think everyone to make sure that low and middle income customers, they didn't get left behind. Because again, a heat pump is a really expensive technology, it's a higher end technology because of its cost. And there's some very large incentives for electrification specifically when it comes to low and middle income homeowners.
Cody Simms (41:08):
And I think the whole tax credit for consumers is AGI or aggregate gross income metered, is it not meaning it'll cap out at a certain amount of income, but for lower, like you said, for lower income Americans, there'll be even more benefit I believe?
Lauren Salz (41:22):
Yeah, there'll be even more benefit for low income Americans because the thing about tax credits, sometimes people, if you have a low income, you'll have a tough time monetizing a $2000 tax credit.
Cody Simms (41:32):
Yep, makes sense. Talk about Geo. So today you've started mostly in the northeast, I think you've recently expanded to Chicagoland area. Maybe explain a little bit about how you're approaching market expansion and if there are patterns you're looking for in terms of home types or if it's more of just a total addressable market type of expansion path or what else it might be?
Lauren Salz (41:56):
So historically we operated in New York State for a long time, but even with the New York state, we kind of initially expanded utility territory and around 14 months ago we're still just New York state. And then since then we've kind of been expanding throughout the northeast and also just Chicagoland as you mentioned. So the things that we like to see in market. So we like to see at least one more extreme season. So either a hot summer or a cold winter, which is most of the US, but we do like to see a time in the year where someone will be uncomfortable if their home isn't properly insulated.
(42:32):
We're also looking at the total addressable market, population density, how easily we can build and install our network there and how quickly. And then we're also looking at things like weather patterns and therefore what the ROI is on some of these types of improvements. I'll say that things have changed over the past few years. I used to say, "Oh, I think we'll be in Canada before we're in Washington State or northern California." But now these are all places where people are getting air conditioning. So I think that we need to be in those Geo's to say, "Hey, you should get a heat pump and not just get air conditioning."
Cody Simms (43:11):
That's interesting. So actually let me click into that. Are you seeing more of your customers generally those who are ready to add an AC for the first time, or those who are retrofitting their existing equipment?
Lauren Salz (43:28):
We see both, but we've seen more customers of late of people wanting to get AC for the first time and we won't get people AC for the first time if they're not getting a heat pump. That's not a service.
Cody Simms (43:42):
Yeah, no, that's great. But that's yet another customer acquisition funnel, I guess for you all to optimize, which is...
Lauren Salz (43:49):
It is definitely making sure that we're serving those people correctly and have an offering that's attractive for people who are primarily motivated for getting air conditioning for the first time.
Cody Simms (44:00):
And how... Just on the tech side of things, we haven't talked about ducted versus ductless. You do both. What's been the general consumer appetite in how people make the choice? Does it depend on just if they have existing duct work or not? For the most part?
Lauren Salz (44:12):
Typically, it's like do they have existing duct work or not that we're going to plug into? That's the main decision. And then looking at cost relative to that, but that's the main driving factor.
Cody Simms (44:24):
Ductless I assume is cheaper, generally?
Lauren Salz (44:26):
Yes. Generally, yeah. Because I mean, duct work can be pretty expensive, even retrofitting it, but if you don't already have it, and also if you don't already have a ductless system, people are accustomed to making more adjustments per room.
Cody Simms (44:42):
Maybe explain what a ductless system is for those who aren't familiar with it?
Lauren Salz (44:46):
Oh yeah. So I'm trying to think. So let me start with a ducted system first, right? There'll be like these ducts that are going through your ceilings and your walls that are transferring the air throughout your house, and it's typically controlled by a centralized system. And then a ductless system and when heat pumps specifically, you're talking about ductless mini splits. You have kind of these room by room mini units that you're putting on your wall that you're kind of typically controlling on a more micro level.
Cody Simms (45:18):
I feel like I'm most familiar having seen those, maybe I think of those as like, "Oh, this is a hotel little thing that sits on the wall in a hotel." Right?
Lauren Salz (45:26):
Yeah, exactly. Or honestly, if you're going to Europe as recently in Israel, very common systems to see there.
Cody Simms (45:35):
And then on the insulation side of things, what are the most common changes people need to make with insulation?
Lauren Salz (45:41):
Yeah, people need insulation in their attic and that's like the biggest bang for your buck. That's where of most the air escaping. Now air ceiling needs to be paired with the insulation. A very common problem that people have is a lot of people have high hats or recess lighting, which looks beautiful, but typically it's leaking air and your attic. And so you have to go into the attic and seal around the gaps around all of those light that you have in your ceiling and then you insulate on top of it.
Cody Simms (46:10):
And then maybe explain for people just what air ceiling is?
Lauren Salz (46:14):
Oh, air ceiling is... Think about putting on a raincoat. It kind of blocks out the water from getting in, but a raincoat by itself doesn't keep you warm, which is why you kind of put in the insulation. It's like the down in your jacket. That would be the equivalent of insulation.
Cody Simms (46:33):
Well, Lauren, what didn't I ask? We've covered everything from the consumer behavior side of things to the changing landscape over the last decade to how your business works, to what are the different pieces of adjustments people should be making in their homes to how you work with contractors to how you finance everything. So hopefully we've covered a lot of it, but I'm sure we didn't cover everything.
Lauren Salz (46:55):
Oh, we covered a lot of it. I think one thing that I would want you or the listeners to take away from this podcast is that with homes making up 20% of greenhouse gases in the US, that's the hardware already exists to solve the problem. So it's really about coming up with ways of delivering this hardware to consumers that resonates with them. And that's not messages of saving the planet or saving energy or saving money. And I think that's one of the bigger breakthroughs that we've had with field over the course of the past nine, 10 years. And while I think it's awesome that the message around climate has changed and everyone wants to work in climate and tech now and everyone wants to invest in climate tech, but not losing sight that consumers still don't care that much about the climate.
Cody Simms (47:45):
Somewhat depressing, but also realistic, which is important when we're building a business. Well, for those who are listening, who are intrigued by what you're doing, A, what should potential customers do to learn more and B, for folks who maybe say, "Hey, I actually want to try to work on this problem with you, where are you looking for help right now?"
Lauren Salz (48:05):
Yeah, well, finding potential customers, I would just go to sealed.com and take a look at some of the articles we have on our website, or you can schedule time to speak to one of our team members. And then for people entrusted in working at Sealed, you can go to sealed.com/jobs and we have a variety of job openings available.
Cody Simms (48:22):
And same with, I guess if there are any contractors listening, where should they go?
Lauren Salz (48:26):
Yeah, contractors, there's also a spot on our website for contractors as well.
Cody Simms (48:29):
Great. Lauren, I so appreciate you taking the time to join us today and I learned a ton.
Lauren Salz (48:34):
It was great talking today. Thanks for having me on.
Jason Jacobs (48:37):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (48:41):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. To do this, we focus on three main pillars, content like this podcast and our weekly newsletter, capital to fund companies that are working to address climate change and our member community to bring people together as Yin described earlier.
Jason Jacobs (49:03):
If you'd like to learn more about MCJ Collective, visit us at www.mcjcollective.com. And if you have guest suggestions, feel free to let us know on Twitter @mcjpod.
Cody Simms (49:18):
Thanks and see you next episode.
