The following interview is a conversation we had with Daniel Betts, CEO of Blue Frontier, on our podcast Category Visionaries. You can view the full episode here: $47.8M Raised to Revolutionize Air Conditioning with Energy-Storing Smart Climate Technology
Brett
Welcome to Category Visionaries, the show dedicated to exploring exciting visions for the future from the founders who are on the front lines building it. In each episode, we’ll speak with a visionary Founder who’s building a new category or reimagining an existing one. We’ll learn about the problem they solve, how their technology works, and unpack their vision for the future. I’m your host, Brett Stapper, CEO of Front Lines Media. Now let’s dive right into today’s episode. Hey, everyone. And welcome back to Category Visionaries. Today we’re speaking with Daniel Betts, CEO and Co-Founder of Blue Frontier, an air conditioning company that’s raised 47.8 million in funding. Daniel, how are you?
Daniel Betts
I’m doing great. How are you?
Brett
I’m doing great. I’ve done about a thousand of these interviews so far, and I’ve not spoken with anyone that has the label an air conditioning company. I know there’s much more to what you’re doing, but I thought that’d be a fun way to open it up. So, air conditioning, how’d you find your way into this world?
Daniel Betts
Oh, my gosh. So I have a PhD. I’m overly educated. I have a PhD in mechanical engineering with concentration in thermal sciences. So thermal science is the space of, like, how heat and energy and fluids work with each other to create, you know, processes that create power, energy, and take away heat. Right. And so it’s a natural thing to know a lot about air conditioning if you’re in that space. But I started my career in the power generation side. So I first worked on hydrogen and fuel cells, lithium ion batteries on electric vehicles. I also worked on analyzing power generation technology and its interaction with weather. And in almost every project that I was developing energy production devices and systems and analyzing those, I would stumble with a really annoying device, which was air conditioning.
Daniel Betts
So air conditioning was always the thing that would turn on at the wrong time when it was hottest. Right. So you get this air conditioning at the hottest period. That’s when everything else is running at lowest efficiency. And then you have to provide the power for that. And also air conditioning sizes, everything. So the entire grid, the entire power generation system is all sized to give you the power necessary for your air conditioners. And your average power is much smaller, much lower, but your peak power is much higher. So that means that you’re overpaying for your infrastructure in order for us to have air conditioning. So all the power infrastructure was air conditioning related. And so annoyed by that, I said, you know, someone needs to do something about this thing.
Daniel Betts
And so I started complaining about it in my peer groups of the advanced energy space and stumbled on solutions. And one of them was by the National Renewable Energy Labs, which allowed for dramatic improvements in electricity inefficiency and reductions in electricity consumption associated with air conditioning, plus the potential of shifting the load of air conditioning so that it didn’t happen when the power generation people did not want it to occur. And so that combination was something that I could tell could change the world. And so I kept on working on that in that direction, and that eventually made me an air conditioning person rather than a power generation person. And, you know, that was back in, like, 2013 is when I started looking at the space. And after too many years, I’m now here, CEO of a technology company in the air conditioning space.
Brett
And I see the company was founded in 2017, I believe. Take us back to like, first six months. Like, what did the first six months look like? Building air conditioning technology. Where do you begin?
Daniel Betts
So right before starting the company, so I was talking to my friends, I’m not sure we know Energy Labs, like maybe nine months before I started the company. And the conversation was around what would be the things that would be amazing for them to do with their technology in order for it to be a super commercial success, right? And then I got a phone call like a couple of months later from my friends at National Renewable Energy Labs, and they’re like, hey, Daniel, sign an NDA and come over to Colorado and we want to talk. And I went there and they had technical solutions for almost everything that I had talked about. And if you ever work with the National Labs, that’s very typical.
Daniel Betts
Like, they hire some of the smartest people in the entire planet, and if you give them a challenge, they’ll come up with amazing solutions for them. This was exactly the case. Within a very short period of time, my friends and the folks at the National Labs, and the National Renewable Energy Labs in particular, had found the solutions, which means that I now had in my hands knowledge that could change the world. And the National Renewable Energy Labs was open to the idea of me taking a license, a global exclusive license around the technology for us to become a commercialization partner for them around this technology. So basically, National Renewable Energy Labs basically pushed me into saying, like, hey, become an entrepreneur.
Daniel Betts
The first thing that you do is on my way to the airport, I called my wife and I said, I think I’m going to become an entrepreneur and I’m going to start this company. And that means I’m Bringing no money home for a while. What do you think? It should be fun, right? I’m extremely lucky. My wife was completely supportive and said, yeah, we have to do this. We have the responsibility of knowledge. Then the next phone call was to find the best people, you know, that can do the company with you. And so I called the best mechanical engineer and product development mechanical engineer that I know, which is Matt Graham, I had worked with him before. The best thermal scientist and thermo analysis that I know, which is Dr. Matt Tillman.
Daniel Betts
And the best person on the business development and business strategy side of things, Greg Tropsa, who had founded the Ice Energy, which had done the Ice Bear, so related industry. And I brought them together and I said, guys, let’s do this. You know, like, let’s share the pain and become entrepreneurs. And we sat at a Thai restaurant and shook hands. Then we papered it all up and the company started. And that was in December of 2017. So the company started off with us being basically truly a garage operation. We were working from our homes and were also using the National Renewable Energy Labs as a little place where we could do some experiments. But the majority of the work was being done in our homes.
Daniel Betts
And were able to get grants relatively soon after the founding of the company from NYSERDA in New York and then from Southern California Gas in California and Sempra and also from Oak Ridge National Labs. And that gave us just enough money for us not to pay ourselves, but to reinvest into the company and advance the technology through the paces of things that we thought were necessary to move it closer to where a product could be made. And little by little, we, you know, within the first six months, we started, you know, identifying new technology and growing on the technology and prototyping to that point. We’re feeling, you know, excited that we’re on the verge of changing the world.
Brett
How long until you started raising venture capital? At what stage did that begin? So December 2017, founded the company. You’re doing all that. When do you start raising venture?
Daniel Betts
So in 2019 was when we decided to open up the company to venture. We had some grants at the beginning to help move things along, but we didn’t feel ready right at the beginning to raise venture with any sort of, you know, strength to negotiate a good equity deal. But we took the opportunity. So we became part of the Rocky Mountain Institute, has this thing called the third derivative, which is an incubator that they’ve put together with some of the biggest clean tech investors. And it allowed the cleantech investors to have a third party identified technology that would have the highest impact. And were brought in the inaugural cohort of that third derivative. And that made us become brave to say, like, yeah, let’s raise our first round of capital.
Daniel Betts
We did a convertible note at that point, and we ended up raising $1.25 million through that mechanism. And that gave us enough, you know, economic power at that point to move some of the projects that we had internally even further and then start in earnest the process of doing a proper series a capital raise. So we did that within the year, and we raised $20 million.
Brett
I know in the world of venture, it’s changed a lot. You know, What I saw 10 years ago is, you know, investors didn’t really want to back hardware or hard tech. They didn’t want it to back software. Now I know it’s flipped. And what I’m seeing from investors, like, they’re not interested as much in SaaS now.
Brett
They want hardware, they want hard tech. Is that relatable what I just said? Like, did you see that? Like, how have those conversations evolved for you?
Daniel Betts
Yeah, I think it’s a little bit of. I think investors are open to anything that makes sense, but you do have to find investors that have realistic expectations around hardware. So hard tech has the potential to take you to places of valuations and growth, that you would have a hard time protecting your growth if you were just a software company. Right? So hard tech gives you that, you know, mode of technology that is very difficult for someone to come in and just copy and just implement around you. So that’s really good. And you see it, right? Like Tesla, right? You know, these are companies that grow at LE by changing the foundational technology of something that is very mundane. And you can create new services and growth spurts that you couldn’t follow with that conventional technology, and that’s where you want to be.
Daniel Betts
However, it is a much more capital intensive process right in the hard tech space because you do have to build manufacturing. You do have to. You know, you’re bound by the laws of physics. So your technology in the software space, you can say, I want my app to do whatever, and all you have to do is program it to do that. Right. In the world of physical things, only if the physics enables it will it do what you want it to do. And anybody that has done anything in the physical realm knows that it will surprise you, right? So you think it’s going to do something, but it does something else. And so you end up doing a lot of chasing of what does this device really want to do, Right?
Daniel Betts
And you have to sort of follow the physical phenomena that you’re trying to control, Right? So, yeah, there’s a mixture here of risk profiles and opportunities. So Blue Frontier actually is developing hardware that is utilizing new physical phenomena to supplant one of the largest appliance markets in the world, which is air conditioning. But it’s also one of the fastest growing appliance markets in the world, one that is utilizing technology that is over 150 years old and in which the product is mostly commoditized among a small group of very large players. And so all of those dynamics mean that the market is ripe for disruption, but it also means that disruption will be very difficult. So you cannot just say that I have new technology. You have to have technology that is way better than the existing technology.
Daniel Betts
So you have to have unfair advantage, and you should be able to use that unfair advantage to change the rules of how things are sold and bought into that market in a way that the conventional companies cannot follow you into it. And so that’s what we’re trying to do. And so it’s more complex than just saying, like, I have a better widget. You have to have a better widget that enables new ways of doing what the market does today.
Brett
I think the line I heard in a podcast a while ago is, if you want to really disrupt a market that’s been around for a long time, it’s been slow to change. Like, you can’t come in and promise an evolution. You have to promise a revolution. It needs to be completely different rules, totally different game. And, like, that’s how you break into a market. But if you just come in and say, like, oh, we’re a little bit better or faster, like, everyone’s already saying that, like, that’s not enough. Does that sound like your market?
Daniel Betts
Absolutely true. Absolutely true. I am a firm believer of that. And that’s exactly why I became brave around creating Blue Frontier, is because, you know, we have technology that is not like a little bit more efficient. We’re three times the efficiency, right? So now you’re in a very different world. But it also has embedded in it the capacity to store energy and, which allows me to create flexible electricity consumption without impacting the comfort of people inside the building. And that’s actually really important because when you look at the world of how we’re building the next generation of the grid for the entire world, it’s around renewable energy. And for good reason. One is really good for the environment. But also the lowest cost of producing electricity is renewable energy.
Daniel Betts
Except for the air conditioner creating a peak load that requires you to put batteries, right? So if I can shift the load such that the air conditioning load is consistent and coincident with renewable energy, I’ve created enormous value to our utility partners by eliminating the need for batteries and infrastructure around new transmission distribution lines and capacity and around the energy storage space for the utility. In doing so, I created two value streams. Dramatic reductions in energy consumption plus dramatic reductions in the cost of electricity that is being provided to the machine, and also a dramatic reduction in the infrastructure necessary to get us to a renewable energy portfolio. So that’s the combine effect. A conventional technology has no way of chasing us into that level of value.
Daniel Betts
But also another thing that is really important in the hardware technology space is that you must provide technology that is for the user much better, right? So we have to make an air conditioner that once you’re inside this air conditioned space that I am creating, you cannot go back to the old way of doing things. Right? Because you will notice the difference. We see that in the vehicle space. Like they’re, you know, while electric vehicles were initially sold because they’re good for the environment. And that’s great. Once you drive an electric vehicle and you get that, you know, very fast acceleration, linear acceleration that is visceral, and you get that handling your internal combustion engine, you know, vehicle, you know, just doesn’t live up to the electric vehicle anymore and you can’t go back to it.
Daniel Betts
So the same thing will happen in the air conditioning space if you use one of our units. Our units control humidity and temperature independent of each other and also provide outdoor air ventilation. And those three variables with quite a bit of independence of each other. So which means that I can create comfort inside buildings that is tied to the actual use case of the building and to the people that are inside the building because I have these three variables controlling it and I have complete adaptability of those three variables. And it just so happens that humidity control is more important to your comfort than temperature control. But temperature control is what the conventional air conditioner doesn’t do very well with. Humidity.
Daniel Betts
And so the only way that you can feel comfortable is by dropping down temperatures to below a certain point where you’re actually freezing in order to control humidity. And we don’t have to do that. So no longer you have to wear a sweater when you walk into your office in the summer. No longer are you cold and sweaty at the same time. You will be able to have air conditioning systems that provide comfort that would be considered a luxury today.
Brett
That’s very timely. You know, I’m always complaining to my wife that, like, in our house, it’s either freezing cold or super hot. There’s never like a middle ground. There is no middle ground, just one or the other. So I’m glad to know there’s hope. I don’t have to live this way forever, hopefully. Right?
Daniel Betts
Yeah, we’re coming in with a solution. Don’t worry about it. But why this happens, Right? So let’s nerd out a little bit here. So your body is designed to regulate its temperature through transpiration. So you’re always producing water in your skin, you know, sweat, and it evaporates. And so when you’re not sweating, it’s because the water is evaporating and you’re feeling comfortable and the body’s able to regulate that way. And it’s a really effective way of regulating temperature because the evaporation of water carries 900 times the energy than changing the temperature of that water by 1 degree Celsius. Right. So that means that there is an enormous amount of energy that a little bit of water operation can do with the cooling. So your body is a marvel, actually, the human body.
Daniel Betts
We’re one of the only animals that have evolved to have this way of cooling itself, like dogs pants, others. But we have this amazing cooling machine, but it’s very much humidity. And that is why when you are in a low humidity environment, you can tell that you are in like, let’s say Las Vegas, right? And it’s hot, right? But people still walk around and they say, like, oh, yeah, it was hot, but it was dry heat, right? And you could be comfortable in it. But if you are in Miami and it’s like 85 degrees Fahrenheit, you know, the humidity is almost 100% and you are dying, right? So even though the temperature should be in a comfortable space, you’re still feeling horrendous because you’re not able to reject that heat using the mechanisms that your body has created to do so.
Daniel Betts
The same thing happens inside our environments, right? So the lack of control of humidity by your air conditioner makes it such that the band of temperatures that you can feel comfortable in becomes very narrow and very particular to you. So people fight over a thermostat, but if you take away the humidity, that band of temperatures where everybody’s comfortable suddenly opens up, eliminating the fight for thermostat. And so we can do that because what our technology does is that it uses this salt solution, which is called a liquid desiccant, in the parlay of air conditioning. That is the thing that creates the air conditioning process in a machine. And this liquid desiccant, these salt solutions are designed to absorb humidity right out of the air. And these liquids absorb the humidity, dehumidify the air.
Daniel Betts
And then by using that same dehumidification process, we can then use a little bit of water evaporation in alternative channels that create now that cooling effect that makes it such that you have temperature reduction and humidity reduction for the bulk air that’s going into the building. And the fact that we’ve combined those two processes into a single device makes it such that now I can control the humidity to the levels that you want, put the temperature at the levels that you want. I can do them intelligently and independent of each other and actually track your actual needs rather than just, you know, working with only one variable.
Brett
So we’re talking it’s three times more efficient. It impacts the grid in a positive way. It creates a better environment for people in the buildings. What’s the catch here? Is this 10x more expensive than what’s on the market today? What’s the catch?
Daniel Betts
No, so the catch is that it’s early technology, right? So it needs to go through the process of being scaled to the same level of conventional air conditioners and also to have the product diversity that exists in the air conditioning space. So the catch that is new and us as a startup have to pick, you know, early market points where we’re going to enter the market and product lines that we find are the most strategic for that entry to occur. Which means that we cannot make the technology Available to everyone, which is what we would like to do. And then from the cost standpoint, the cost of the equipment will be slightly higher than a conventional air conditioning because we’ve included the energy storage and this, you know, intelligence into the device, which a conventional unit doesn’t have.
Daniel Betts
But that amount of increasing in cost is actually very small compared to the level of savings that you’re going to get from the unit once you implement it. And so it pays for itself very quickly. In fact, over here at Blue Frontier is, you know, we don’t really. We’re trying to figure out how to price the unit in a way that is the most fair and for the market for our customers. But also that leaves the company with enough margins to make it investable, you know, and those margins are there because of those energy savings and because we’re competing with technology that is really not.
Brett
That great for those entry points.
Daniel Betts
What are you thinking?
Brett
Because like you said, it sounds like this could be applied all over the place. There’s a lot of different markets. You know, it’s not just air conditioning as a whole. Like, what markets are you targeting? And then how do you decide those are the ones to target for? My conversation with other founders, that’s always the hard part, right? It’s like choosing which ones to go after.
Daniel Betts
It is very difficult. And it’s a bet, right? You’re going to make a bet. So the trick here is to choose a market that will give you enough replicable product that you get to learn and have, you know, generational improvements that occur fast. That also gives you economies of scale so that you can drive the cost down of the product by creating mass production and you have power over your supply chain. But that is on the premium side of things. And it’s not a market that is so large that it overwhelms the company in its attempt to conquer it, right? So all these things are competing with each other in terms of picking. And then you also want to have as much product market fit, which is a concept that you will never actually have perfect product market fit if you’re doing something new.
Daniel Betts
Because the present market, you’re trying to change it, right? So you have to have some overlap. But you’re always going to be doing something new, which means that there’s a bet on saying, like, people will like the new things that I’m doing. Okay? So our initial market was the commercial building air conditioning market. And the reason why the commercial building air conditioning market is because every building owner in the commercial building space tends to have multiple buildings. And every building, the commercial building space, has a lot of air conditioning.
Daniel Betts
And these commercial buildings are larger, so they tend to have complex cooling requirements, which means that the conventional air conditioners that you put in still have the complexity to be able to deal with all of the things that people are doing in a commercial building, which means that they tend to be higher priced than if you were to go for, like the residential sector. So you have higher prices, high volumes. The value of the customer is really high. So every customer that you get has a very high lifetime value. So those are the right characteristics. And then within that space, we identified a type of air conditioner that we could create the largest impact in terms of energy savings for the building. And that is what is called a dedicated outdoor air system.
Daniel Betts
For those that are not air conditioning people, this is the air conditioning unit in commercial buildings that provides the ventilation air into the building, so the outside air into the building. And that’s really important because that air that you have to have air changes in the building or else the building becomes sick and, you know, unhealthy for people. So your indoor air quality is highly dependent on bringing in that air. We all learned this, by the way, during the COVID pandemic when we all realized that, you know, even though those units existed, they weren’t doing enough, or in some cases, for the sake of reducing energy consumption, we had shut down the outdoor air vents on air conditioning, meaning that were all just recirculating co air. So by code, you have to have ventilation. So those units operate almost all the time.
Daniel Betts
They’re bringing in humid air from the outside into the building. That humid air basically is a river of water into the space, and you need to get rid of that water. And so in order to get rid of the water, the conventional air conditioner has to over cool that air to condense out that water to a very low temperature. But if you bring that low temperature air into the space, everybody would be very uncomfortable. So what they do is they reheat the air and bring the higher temperature air at low humidity into the space. That takes an enormous amount of energy Blue Frontier. With our technology, we could take away the humidity without having to over cool the air, bring the air to a temperature that is comfortable for people to get it.
Daniel Betts
And with just doing that, you’re gaining like 30% reductions in energy consumption, plus the fact that our unit is more efficient from a fundamental standpoint, you end up with 50 to 90% reductions in energy consumption compared to a conventional unit. And so that’s where we decided to attack first.
Brett
Makes a lot of sense and sounds like that’s a smart decision. I’m seeing now we are almost up on time, so we’re going to have to wrap. I think we’re going to have to bring you on for a part two. I have so many other questions that I want to ask you about and things that I want to talk about, but we’ll have to wrap here. Before we do, let’s just end with a fun question here. Vision paint a picture for us of what the vision is going to look like 30 to five years from today.
Daniel Betts
So I think that air conditioning is going to become a device that is going to have be provided with the utility. So this is my vision for the future and let’s see if it happens. Okay. So because air conditioning is the thing that sizes the entire infrastructure of the utility, it is very convenient for a utility to become involved in the provision of advanced energy, storing air conditioning into the market because that’s a faster way to create energy storage and flexibility into the buildings and reduce the overall cost of doing so for the entire ratepayer groups and at the same time increases the margins of the utility because they can produce more renewable energy and the allocation of the rate for infrastructure now is lower. Right.
Daniel Betts
I think if I were to just follow the economics into the future of what we need to achieve in terms of reductions in carbon, improvements in resiliency, reliability, it will better for utility to become a hero of their community by providing people with the capacity to escape increasing temperatures with advanced air conditioning while at the same time making money off of it. I think that’s my prediction. Let’s see what happens. Sounds like a win.
Brett
Win all the way around as well.
Daniel Betts
It would be a win all the way around. Yeah. I love it.
Brett
Man. This has been so much fun. Always enjoyable and always fun to speak with founders who are building hard tech and really tackling the hard problems. I have a lot of admiration for founders like you, so thank you so much for taking the time. Wish you the best of luck. And again, you know, please come back on let’s do a part two sometime in the near future.
Daniel Betts
Perfect. It’s my pleasure. Thank you so much.
Brett
Keep in touch.
Daniel Betts
Take care. Bye.
Brett
This episode of Category Visionaries is brought to you by Front Lines Media, Silicon Valley’s leading podcast production studio. If you’re a B2B Founder looking for help launching and growing your own podcast, visit frontlines.io podcast. And for the latest episode, search for Category Visionaries on your podcast platform of choice. Thanks for listening and we’ll catch you on the next episode.
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