David Energy is going up against Goliath energy incumbents

James McGinniss has been obsessed with decarbonization and the energy grid since he was a high schooler over a decade ago. Now, his startup David Energy has a lofty goal: getting the energy grid to run entirely on clean energy in the next 10 years.

Brooklyn-based David Energy is a software-enabled retail energy provider. It sells electricity to small businesses and residential customers in certain states like New Jersey and Massachusetts, not dissimilar to a Southern Company or Pacific Gas & Electric. But unlike incumbents, it's focused entirely on clean energy. It also helps customers optimize their energy usage and get monetary rewards for saving energy.

The startup has two business streams right now. Its first and larger focus is its small business strategy, which launched in 2022. This approach supplies these companies with clean energy, and also gives companies a dashboard to track their energy use and audit their energy bills to avoid overconsumption.

McGinniss, the co-founder and CEO of David Energy, told TechCrunch the company just launched its residential-focused business in 2023, which is currently available to consumers in Texas who own an electric vehicle or have smart home systems like Nest. David Energy taps into smart home devices and electric car chargers to help them optimize power and notify users when to charge their car.

"Software is uniquely suited to solve these problems automatically for them," McGinniss said about both commercial and residential customers. "If we can identify a way to get cheaper power, they buy that through us. What they are coming to us for is basically becoming their energy manager through their software platform."

McGinniss launched David Energy in 2019. He originally wanted to join a company looking to decarbonize the grid but couldn't find anyone tackling the problem in the way he thought they could. Now, David Energy serves thousands of customers and has raised more money to scale.

The startup just raised a $23 million Series A-1 round led by Cathay Innovation with participation from existing investors including USV, Keyframe Capital, Equal Ventures, and BoxGroup. McGinniss said the company plans to use the funds to continue expansion into more geographies and to prove repeatable product market fit before raising its next round.

"Anything related to the power grid, each round the broader investment community has gotten smarter and smarter about it," McGinniss said. "Back in 2019, no one was really aware of the opportunity. By the next time we were raising, people were talking about climate tech and starting to understand that in the electricity sector there is this massive opportunity."

Simon Wu, a partner at Cathay Innovation, told TechCrunch that they got interested in David Energy because it aligns perfectly with the French venture firm's climate thesis. The company has big ambitions but also a product line that is out and making money now.

"David Energy was one of the first [companies] saying, 'Hey let's try not to make new energy assets, let's see what we can do or what we have right now,'" Wu said. "If we are able to optimize what we have that hasn't moved digitally, we can structurally lower costs on energy in a more software-oriented manner."

David Energy may face some strong headwinds when it comes to scaling. Each state approaches its energy grids differently, and switching to clean energy or managing energy consumption details aren't necessarily top-of-mind for residents or commercial businesses.

Residential customers also have to end their contracts with a legacy energy provider to join David Energy, which means the company needs to maintain a rock-solid foundation of trust. On the commercial side, McGinniss said that many of David Energy's customers thus far are from outbound outreach, as there is an education element involved to get people to sign up. He added that many businesses aren't thinking about switching to clean energy nor realize that tracking their energy consumption can help them reduce it and save money.

Other startups are looking to tackle the grid's problems, too. Octopus Energy is one that provides clean energy to residents in the U.K. and Texas; it's raised more than $2.9 billion in venture funding. Arcadia is a late-stage startup looking to decarbonize the electric grid, and it has raised more than $575 million from VCs.

McGinniss acknowledged that David Energy's strategy is just one approach to fixing the energy crisis. He added that the company is starting to see a flywheel effect from its existing customers leading to new users, and he's optimistic about the company's incentives and software approach, too.

"We want to build the new incumbent on the power grid that will be able to handle this new environment that incumbents aren't equipped to adapt to," he said.