Welcome to the 98th edition of Deep Tech Catalyst, the educational channel from The Scenarionist where science meets venture!
Grid technology is at an inflection point. After a decade of flat consumption, electricity demand is climbing fast while weather-driven disruptions strain supply. Data centers for AI are concentrating load, interconnection queues are long, and the legacy grid wasn’t built for this volatility.
The result is a real imbalance—and a real opening for solutions that harden infrastructure, localize generation, and align with how utilities actually buy.
How do Deep Tech founders capitalize on this moment—commercially, technically, and financially?
To unpack what it takes to build investable grid companies now, we’re joined by Brad Jones, Principal at SE Ventures!
Key takeaways from the episode (TL;DR):
⚡️ Load Spike Meets Fragile Supply
U.S. demand is rising while weather events drive outages; data centers dominate near-term load and make the problem urgent.
🧰 Two Hardware Plays Win Now
Fortify supply with real-time detection and fault visibility; shrink demand by bringing generation behind the meter at the point of load.
💸 Capitalization > Opex for Speed
When solutions qualify as capital projects, utilities earn a regulated return, enabling multi-year deals and sizable upfront payments.
🚀 Start Where Buyers Move Fast
Hyperscalers are the quickest path for behind-the-meter generation; with utilities, integrate into existing control-room workflows to reduce friction.
🧭 Land with Thought Leaders—Be Ready
Pilots with first movers shape regulatory and market norms; success accelerates adoption, but going big before you’re ready can backfire.
📈 Stage Readiness and Bigger Early Rounds
Pre-seed is team + scenario-driven market analysis; Seed favors recurring revenue on top of hardware; Series A rounds run larger, with traction judged alongside margins and cycle time.
✨ For more, see Membership | Deep Tech Briefing | Insights | VC Guides
BEYOND THE CONVERSATION — STRATEGIC INSIGHTS FROM THE EPISODE
The New Electricity Curve
After more than a decade of flat consumption, U.S. electricity demand accelerated by roughly three percent last year. On paper, that may look modest; in context, it ranks among the highest growth rates seen in a century.
The shift is not a blip.
Electrification is becoming the most economic way to power useful work at scale, and that reality is now showing up in the numbers.
The immediate implication is simple: a system designed for incremental change is absorbing a step-function in load.
That gap between what the grid was built to handle and what the economy now requires is where meaningful company building becomes possible.
Weather as a Structural Supply Constraint
On the supply side, the grid is contending with more frequent and severe natural disasters. Wildfires, hurricanes, and flooding inflict billions in damage on infrastructure each year, and a majority of outages trace back to weather events.
Even a heat wave stresses the system: air conditioners spike demand, infrastructure overheats, and components fail.
The legacy grid was not configured for this level of volatility. The result is a structural constraint on supply at the very moment demand is rising, which sharpens the opportunity for solutions that harden assets, speed detection and response, and keep power flowing under stress.
Why Data Centers Dominate the Near-Term Picture
Multiple forces are pushing demand higher—consumer EVs, commercial fleets, and the electrification of industrial processes among them. In the near term, however, data centers stand out.
The buildout required to support generative AI is driving large, concentrated loads that must be served reliably and quickly.
That concentration makes the challenge visible and urgent, and it creates room for technologies that either add resilient capacity or bring generation to the load.
The wider story is a classic imbalance: rising demand, constrained supply, and a system under pressure.
For founders, that imbalance is not just a problem to analyze; it is a window to solve for, with solutions that will be adopted because the economics and the physics now require them.
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Resilience at the Edge and Power at the Source: Where Devices Win
Detecting and Preventing Infrastructure Failure in Real Time
On the supply side, the job is to keep existing assets online under harsher conditions. The most direct gains come from seeing problems before they cascade.
Camera hardware paired with computer vision can spot the earliest signatures of wildfire ignition, giving utilities hours—not minutes—to act. That shift from reaction to prevention protects transmission and distribution equipment, reduces outage risk, and preserves capacity that would otherwise be taken offline.
Similar thinking applies to instrumentation on the lines themselves.
Devices mounted on distribution infrastructure can identify faults and emerging hazards in situ, feeding operators with the kind of granular diagnostics that make targeted maintenance possible.
The common thread is simple: resilience comes from visibility, and visibility comes from sensors that translate field conditions into actionable decisions fast enough to matter.
Bringing Generation to the Load with Behind-the-Meter Solutions
On the demand side, the most pragmatic move is to relocate generation closer to where consumption is exploding. Behind-the-meter systems do exactly that, shrinking the draw a facility places on the broader grid.
Data centers are the clearest use case. Their loads are growing rapidly, interconnection queues are long, and utilities are cautious about adding new generation methods at utility scale.
Small-scale nuclear configured for campus-level supply, or solar paired with storage designed for the facility boundary, changes the equation by delivering power where it is needed without waiting on grid upgrades.
For operators, the benefit shows up as reduced dependence on external capacity and a smoother path to expansion. For the system as a whole, local generation dampens peak demand and eases stress during volatile periods.
In both approaches—hardening supply and localizing demand—the hardware works because it addresses the specific friction points the grid is facing right now.
Designing for Utility Economics: Capitalization, Opex, and Cash Flow
Selling into utilities is as much about matching their accounting model as it is about proving technical merit. When an investment is capitalized, a utility can finance the project and earn a regulated rate of return on it.
Those costs are recovered from ratepayers over time, which makes the purchase easier to justify internally and more durable once approved.
For startups, this isn’t an abstract detail. It shapes fundraising cadence, go-to-market choices, and how ROI is framed in the pitch.
A solution that qualifies for capitalization moves through the organization with more momentum because it fits the financial incentives that govern how utilities spend.
The California Precedent
Capitalization decisions are regulated and evidence-driven, and the specifics vary by state. In California, the Public Utilities Commission determines which categories of technology can be capitalized, often after benchmarking against incumbent approaches.
Wildfire mitigation is a clear example.
Undergrounding transmission and distribution lines is widely capitalized, but it can cost well over a million dollars per mile. Faced with that price tag, regulators evaluated alternatives—computer vision and related technologies among them—and cleared new options for capitalization because they achieve the same protective outcome at far lower cost per mile.
The lesson is straightforward: if a solution delivers the required resilience at a better cost profile, it can be recognized in the same capital framework as the legacy method, unlocking adoption at scale.
Utilities can earn a rate of return—up to roughly ten percent—on capitalized deployments, on top of the operational benefits the technology provides.
When Purchases Hit Opex, Everything Slows
The flip side is operating expense. If a utility must treat the purchase as Opex, it draws from a budget managed to tight margins.
That reality lengthens sales cycles, introduces more scrutiny, and reduces appetite for rapid rollout.
The product may still be compelling, but it competes with day-to-day spend rather than entering the capital plan.
For founders, knowing which side of that line a given offer will fall on is essential because it determines not just price sensitivity but velocity.
Contracts, Upfront Payments, and Extending Runway
Capitalized programs also change contract shape.
Multi-year terms of three to five years are common, which is longer than in most technology categories.
In many cases, the utility prefers to prepay a large portion—or even the full total contract value—at signing.
The cash arriving from a single, large, capitalized contract can resemble an early financing round.
Used wisely, it extends the runway and reduces dependence on external raises between milestones. For teams building hardware or hardware-plus-software solutions, that can be the difference between a thin cash buffer and the flexibility to execute.
Positioning ROI for the Approval Path
Because commissions benchmark outcomes against the current state of the market, the burden is on the company to quantify impact in the terms regulators and operators already use.
That means translating prevention, resilience, and operational continuity into credible cost comparisons with established practices, and designing the product so those results can be demonstrated in the field.
The tighter the link between observed performance and the capitalization criteria, the faster a utility can move—and the more repeatable the sales motion becomes.
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Hyperscalers vs. Utilities: Go-to-Market Choices That Reduce Friction
Customer selection is a pacing decision. For behind-the-meter generation, data centers are the natural starting point because demand is concentrated and urgent.
Hyperscalers are adding capacity at extraordinary speed and are actively searching for technologies that let them stand up power close to the load.
Utilities, by contrast, tend to move more deliberately on new generation methods, and interconnection queues can slow deployment on the grid side.
When a single private buyer is willing to purchase and operate at scale, the shortest path to traction is often through that door.
Fit the Software to the Control Room, Not the Other Way Around
Integrations live or die on how they meet operators where they already work. Control rooms run mission-critical systems continuously, with limited screen real estate and no appetite for yet another standalone interface.
Solutions that blend hardware and software—whether camera networks that detect wildfire ignition or line-mounted devices that surface faults—gain adoption when they plug into existing distribution management systems and deliver insights without forcing retraining.
When direct integration is cumbersome or impossible, product strategy should adapt to the workflow rather than fight it.
(E.g., Allowing engineers to interact with AI agents via familiar channels like email, returning outputs in formats such as Excel, mirrors consulting patterns utilities already trust, and reduces friction to near zero.)
Product Choices that Streamline Capitalization and Onboarding
Design decisions can smooth both procurement and regulatory approval. Simple, learnable interfaces lower the barrier to day-one use.
Shareable links enable collaboration across siloed teams that must weigh in on capital plans.
Thoughtful back-end architecture makes it feasible to offer a constrained version of the product at minimal cost, giving stakeholders hands-on exposure before a full rollout.
Because public utility commissions benchmark outcomes across many voices, technology that clearly serves operators, planners, and regulators alike is more likely to be recognized for capitalization.
The result is a cleaner approval path, faster onboarding, and a sales motion that aligns with how utilities already buy.
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Selling into Utilities: Who Matters, When to Pilot, How to Scale
Who Actually Drives the Deal Inside the Utility
Access at the top helps, but it is rarely sufficient.
Utilities are deeply siloed, and the buyer for a disaster management solution is not the same leader responsible for real-time grid operations.
The people who carry a deployment from interest to integration are the directors and managers embedded in the specific function a product touches.
Reaching them is not straightforward; getting in front of utilities is hard, and warm introductions from trusted nodes in the network often make the difference between a stalled conversation and a serious evaluation.
C-suite sponsorship can unlock doors, yet progress is determined inside the operating teams that will live with the technology every day.
Pilots with First Movers—and the Risk of Going Big Before You’re Ready
The industry has clear thought leaders who set the tone for innovation.
In California, PG&E has been an early adopter of computer vision for wildfire mitigation and a first mover in standing up a mission-control model for disaster response.
Their pilots become reference points. Regulators look to what worked and what did not when they evaluate what should be capitalized, and peer utilities often follow the same path.
The attraction of landing a pilot with a first mover is obvious, but it comes with a responsibility to be ready for the pace and scale that can follow.
If a solution is not prepared to roll out quickly and reliably, the same visibility that accelerates adoption can backfire, creating brand damage that complicates customer acquisition across the region.
Turning Early Success into Regional Momentum
When a deployment performs with a recognized leader—PG&E, Xcel Energy, NextEra, and others—the signal travels.
Pilots that demonstrate clear outcomes give regulators tangible evidence for capitalization decisions, and operational teams at neighboring utilities see a vetted path to implementation.
The sequencing matters: start where the organization is ready to move, prove the outcome in production conditions, and let that performance inform the broader conversation.
Done well, one thoughtful engagement becomes the basis for momentum that extends beyond a single customer and shapes how a market modernizes.
Tips for Grid Tech Builders: Pre-Seed, Seed, and Series A
Market Analysis that Anticipates Policy, Incentives, and Climate Risk
At the pre-seed stage, readiness is defined by people and judgment. A capable team paired with a market analysis that does more than size a category on averages is the baseline.
The work needs to stress-test scenarios that reflect how policy shifts, incentive structures, and climate risks actually change the go-to-market.
Geography matters. Launching in ERCOT and then pivoting to CAISO can force substantial product and business model adjustments. If those shifts aren’t anticipated, the next raise can arrive under pressure, including the risk of a down round.
The discipline is to map pathways that connect technical milestones to regulatory contours and grid realities before committing scarce capital.
Revenue Quality and Recurrence with Hardware + Software
By seed, a tangible commercial signal begins to matter. Zero to one million dollars in revenue is a reasonable band, with a clear preference for dollars that recur.
Hardware can and should sell, but the revenue model strengthens when the system is anchored by software that renews and can, in principle, be removed if the contract isn’t extended.
That construct keeps the customer engaged beyond the initial install and creates leverage for retention.
It is not feasible in every use case, yet where it fits, recurring software layered on top of hardware reduces volatility and makes the business easier to scale.
Why Early Grid Rounds Run Bigger—and What Milestones Count
Post–Series A, round sizes often look larger than in conventional enterprise software. Twenty-, thirty-, and even forty-million-dollar Series A financings are not uncommon in grid technologies, a pattern that rhymes more with today’s generative AI rounds than with classic SaaS.
The bar, however, is not a single metric.
One to five million dollars of revenue is a helpful benchmark, but it is evaluated alongside gross margin profile, sales cycle length, and evidence that deployments can move from pilot to scale.
There is no rigid template for timing a Seed, Series A, or Series B.
What matters is demonstrating that the product performs under production conditions, the economics hold as contracts expand, and the commercial motion repeats with less friction over time.
