Enginuity is offering equity at a $95 million valuation. The startup is slightly overvalued compared to other hardware companies, but its price isn’t outrageous. Enginuity generated more than $5.6 million in revenue in 2020. Therefore, its revenue-to-valuation multiple for this round is close to 17x, which is rather high. However, it is important to note that Enginuity’s high revenue doesn’t come from sales of its products. Enginuity’s solutions are still under development and aren’t yet available on the market. Its revenue comes from its fully owned subsidiary, Katech Engineering LLC, a motorsport engine company. 

Overall, Enginuity’s valuation is rather high. A valuation closer to $50 million would be preferable for investors. But the good results of its subsidiary justify this valuation.

The global combined heat and power market was worth $32.7 billion in 2019 and is expected to grow at an annual rate of 7% until 2026. Enginuity is selling combined heat and power units functioning on natural gas in the United States. Heat and power units powered by natural gas represent less than 30% of the market, while the US and Europe share 50% of the global market. Therefore, Enginuity cannot claim more than 15% of the combined heat and power market.

Enginuity’s market is rather small. But when the startup acquired Katech Engineering LLC in 2020, it entered an additional market. Katech has been manufacturing motorsports engines since 1977 and will produce Enginuity’s products’ engines. This acquisition opens up a new revenue stream for Enginuity. The global motorsports market is projected to be worth $4.8 million in 2021 and to grow at an annual rate of 7.2%. 

Overall, Enginuity’s addressable markets are pretty small. But as long as Katech sells in the motorsports market, Enginuity will benefit from two different markets and be more protected against market variations. 

James Warren, founder and vice president of design, invented Enginuity’s engine architecture. After more than 27 years of experience in sales at General Motors, Warren now leads the development of Enginuity’s application. The company’s co-founder and chairman is Steve Niswander. He holds a bachelor’s degree in marketing and advertising from East Tennessee State University and has worked in dealership management and finance during his career. He now leads Enginuity’s commercial development efforts.

The two co-founders lack experience in the energy industry, which may hamper Enginuity’s growth. But they built a strong team of experienced professionals, starting with Enginuity’s CEO, Jacques Beaudry-Losique. Beaudry-Losique holds an MBA from the MIT Sloan School of Management and a master’s degree in industrial engineering from Stanford University. After starting his career in business development and operations at McKinsey and GE Power Systems, he worked in clean energy as the vice chairman of the International Energy Agency and as a senior executive at the US Department of Energy. His experience and networks are an asset to Enginuity.

Enginuity’s engineering team is led by Phil Zoldak, who holds a PhD in mechanical engineering from the Michigan Technology University. He previously managed engine development and test operations at Hyundai.

While Enginuity’s founders aren’t experienced in the energy field, they have built a strong team to lead the development of their company. Their capacity to hire more experienced people may be an indicator of the company’s success.

Enginuity has very few competitors providing similar combined heat and power units for homeowners. Its closest competitor is Modern Electron. Modern Electron produces a natural gas-powered water heater capable of using lost energy to generate electricity, comparable to Enginuity’s E|ONE product. Neither Enginiuity nor Modern Electron are selling yet, but Modern Electron announced prices between $7,750 and $8,500 while Enginuity will have an average retail value of $12,500. This puts Enginuity at a price disadvantage. In order to compete effectively, Enginuity will need to prove its product is worth the much higher price.

Traditional natural gas water heaters waste close to 40% of the gas’ energy potential. Enginuity’s patented technology allows homeowners to use, store, or sell otherwise wasted energy to electricity providers. Enginuity’s E|ONE water heater saves energy and costs for homeowners. It can be purchased by environmentally or financially concerned customers and also by any of the millions of homeowners who experience prolonged electricity outages. Enginuity’s technology is also protected by 19 patents and 11 pending patent applications. Compared to most natural gas water heaters, Enginuity’s product is quieter and cheaper in the long term. As half of all US homes rely on natural gas to power their water heaters, E|ONE has potential to acquire significant market share. Overall, Enginuity’s technology is well-differentiated.

Enginuity has achieved some important milestones. The company has raised more than $12 million from venture capitalists and crowdfunders since its inception in 2015. Enginuity won several awards from the 2020 International Builders’ Show and the 2022 Air Conditioning, Heating and Refrigeration Expo. The company recently signed a $3.7 million contract with the US Army to build its RIHGS (Ruggedized Intelligent Hybrid Generator Set) portable generator product. Overall, Enginuity holds 19 patents and has an additional 11 patents pending, making its products highly defensible. 

But while it has made some promising progress, Enginuity still does not have a finished product. The company generated more than $5.6 million in revenue in 2020 through its subsidiary, Katech Engineering LLC, a producer of high-performance cars and engines. This revenue is high compared to other companies raising on crowdfunding platforms, but it is not directly related to Enginuity’s performance. Therefore, the company has not yet proven product-market fit for its homeowner solution, E|ONE. Without any revenue from its product, Enginuity’s raise is crucial for the company’s financial stability. The company has more than $12 million in debt and lost more than $2 million in 2020. Overall, Enginuity has some concerning financial performance issues.

Enginuity is a high-risk investment. Its products are highly technical and require a long development period before entering the market. The company plans to certify its products in 2022 and start commercialization in 2023. Enginuity depends on external parties’ certifications to start selling and has not yet proven its product-market fit. Additionally, the current slowdown in processor delivery might affect the company’s ability to start selling in 2023. 

Time and funding are risk factors for Enginuity, and the company is only making revenue through its subsidiary. Enginuity relies heavily on investments, as it burned more than $2 million in 2021 and has more than $12 million in debt. Companies that cannot reimburse their debts run the risk of defaulting or going bankrupt. Therefore, Enginuity must succeed in introducing its products on the market and fundraising more capital to improve its financials and lower its risk.

Enginuity is raising nine months after the start of its last round, which closed in October 2021. In such a short period of time, Enginuity’s revenue, team, and market didn’t change significantly. However, Enginuity signed a $3.7 million contract with the US Army to develop RIHGS (Ruggedized Intelligent Hybrid Generator Set), a military portable generator derivative of the company’s main product (E|ONE). This contract reflects the first concrete interest in Enginuity’s technology. The company was mainly targeting business-to-consumer customers with its E|ONE product, but it can now confidently target business-to-business customers as well. This contract provides the company with a larger market opportunity and opens more possibilities for future success. Additionally, Enginuity recently won a new award at the 2022 Air Conditioning, Heating and Refrigeration Expo. These recent successes demonstrate the increased potential of the company.

Enginuity was started in 2015 by two founders without experience in the combined heat and power market. This market is rather small and slow-growing. There’s a risk that Enginuity may not obtain enough market share to become profitable. Additionally, none of its products have been fully developed, so product-market fit for Enginuity’s business-to-consumer product, E|ONE, isn’t guaranteed. Other solutions are already available for customers to heat water and generate electricity. Enginuity’s technology allows for energy savings and is more sustainable than current water heaters and grid electricity options. However, Enginuity’s products still rely on natural gas. Some customers might be more attracted to similar products using solar or other renewable energies. Therefore, Enginuity’s growth might be limited.

Enginuity’s products are highly differentiated. The only company producing a similar solution, Modern Electron, is not yet selling its products in the market. Enginuity protected its inventions with 19 patents and 11 additional pending patents. Furthermore, Enginuity’s combined water heater and electricity generator for homeowners, E|ONE, received awards during the 2020 International Builders’ Show and the 2022 Air Conditioning, Heating and Refrigeration Expo. While E|ONE isn’t available on the market yet, Enginuity also built RIHGS, a similar solution adapted to military needs, and signed a $3.7 million development contract with the US Army. 

Enginuity’s founders built an experienced team in the energy field to bring their product to market. Founders’ ability to attract talent is often seen as a signal of a company’s success. In 2020, Enginuity acquired Katech Engineering LLC, a company manufacturing motorsports engines. Enginuity will use its new subsidiary to produce the engines needed for its combined heat and power solutions. Katech is a major asset for Enginuity, as it generated revenue of $5.6 million in 2020.

Enginuity is building a combined heat and power technology delivering electricity, heat, and hot water. The company is turning its patented technology into three products built for homeowners, small businesses, and the military. 

Currently, there aren’t any similar products to Enginuity’s technology sold on the market, which makes it highly differentiated. Enginuity’s closest competitor, Modern Electron, is offering a similar solution for homeowners but is not distributing it yet. Enginuity is generating revenue from its subsidiary, Katech Engineering LLC, and its products have received interest from the military. Enginuity has also raised more than $12 million from venture capitalists and crowdfunders.  

Investors should keep in mind, however, that Enginuity’s current raise is slightly overvalued, especially considering its products aren’t on the market yet. The market opportunity is rather small, and Enginuity’s burn rate and debts could become unmanageable if the company fails to earn enough revenue through funding or by releasing its products. As a result, it’s a risky investment. Overall, Enginuity’s current raise has been rated a Neutral Deal.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com.

Analysis written by Léa Bouhelier-Gautreau, December 23, 2021.