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We've previously discussed the need for scalable solutions to retrofit ageing infrastructure worldwide. This presents a huge opportunity, with over $51 trillion expected to be spent on buildings to achieve net-zero targets globally. The majority of these funds will be used to retrofit existing buildings, as 80% of the buildings that will still be standing in 2050 have already been constructed. Insulating the building stock will be a major component of this, as Europe, with one of the oldest housing stocks in the world, currently has approximately 50 million homes without cavity wall insulation and another 50 million with poor-quality insulation.
At A/O, we have previously invested in companies such as Enter in Europe to enable the retrofit of our homes at scale, and our investment in VARM is a sign of our continued commitment to tackling this challenge, albeit from a different angle. There is no such thing as one silver bullet to convert our homes into more energy-efficient and environmentally friendly homes. Rather, there is a complex web of solutions across the entire spectrum of retrofitting, specialised in various verticals, that together help the industry transition meaningfully and in a timely manner.
Much like the energy audit, insulation also offers an excellent entry point to whole home retrofits. They are as inexpensive as they are effective, with lower upfront costs than other retrofit options, quick payback periods of under three years compared with over ten years on heat pump installations and have immediate perceivable benefits to an occupant’s quality of life. In fact, insulation has the smallest basket size of all the retrofit technologies and one of the highest impacts on energy consumption. Insulation is also an ideal precursor or add-on to other retrofit measures such as heat pumps, windows, and air sealing. As a result, insulation is the most frequently recommended retrofit measure and is generally required to make heat pumps a viable alternative for a traditional boiler or furnace. All these factors enable VARM to take advantage of two major trends, broadly the accelerating retrofit trend as a standalone solution but also piggyback on the massive acceleration in heat pump adoption in Europe, taking advantage of efficient cross-selling through heat pump channels.
Like the broader retrofit landscape, insulation suffers from some common challenges around the lack of a streamlined customer journey and a fragmented supply chain that is inefficient and opaque. VARM is bringing repeatability and consistent quality to installations whilst reducing the labour shortage, two problems that have marked the insulation industry.
VARM is transforming the process for homeowners in Germany to insulate their homes by introducing the first digital and unified pathway for insulation installation. The platform offers a digital-first solution for homeowners to schedule on-site inspections, apply for grants and have insulation installed by one of VARMs trained and certified contractors. In the medium term, VARM will offer its suite of software tools to installers not on their payroll, who will use the platform to streamline their operations and automate work planning, bookings, billing and sales. VARM will also launch a training academy to upskill contractors for installation and the use of VARM’s software suite.
The insulation market is large, and because of the ongoing energy crisis in Europe, which has catalysed regulatory and market incentives for energy conservation, it is likely to experience significant growth. Unlike the solar and heat pump markets, there are no tech-enabled vertical/specialists targeting the insulation installer market, presenting VARM with a first-mover advantage. Europe has a shortage of specialist blue-collar trades relevant for insulation installation and VARM is actively filling the market gap by upskilling a workforce, which is set to become an increasing problem as the demand for energy retrofits rises. The labour challenge is particularly acute in markets such as Germany, which are at the energy transition's leading edge. A recent McKinsey report indicates that the shortage of electricians in the country means that there are 1.7 vacancies for every available energy technician, which takes six months on average to fill. VARM offers immediate benefits to B2C customers while also leveraging B2B networks from A/O and Foundamental for accelerated growth.
VARM’s team are outsiders to the energy industry and are there to question and challenge every aspect of its status quo and bring much-needed operating experience in building tech-enabled field services and customer journeys. Co-founder Sebastian Wuerz is an experienced entrepreneur, having previously founded Homefully (acquired by Habyt), a venture-backed co-living operator, which he scaled to 1,000 rooms and exited. The other co-founder, Christian Gruener, comes from a consulting background, working at Siemens Advanta. They make an excellent duo to be going after this opportunity, and we are excited to continue working with them.
At A/O, we back the positive transformation of the built world and are committed to being a key enabler of the industry’s transition. We approach the opportunity with humility and flexibility and stand ready to back teams early on with a view to triple down on our investment and support over time to provide continuity in funding so that the best founders can focus on execution because time is a scarce commodity when it comes to the climate crisis.
Onwards and upwards, always
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