The Hydrostor Strategy: Rewriting Risk Models to Sell Revolutionary Tech to Conservative Buyers
Conventional wisdom says utilities won’t bet on unproven technology. But what if you could completely eliminate their risk? In a recent episode of Category Visionaries, Curtis VanWallenghem, CEO of Hydrostor, revealed how rethinking risk allocation helped them secure $2.5 billion in contracts for their revolutionary energy storage technology.
The Traditional Model Was Broken
Selling new technology to utilities has always been a chicken-and-egg problem. As Curtis explains, “Most of our competitors are asking the utilities to front the $1 billion to buy the first system.” With unproven technology, this creates an almost insurmountable barrier to entry.
This challenge was particularly acute for Hydrostor. Their solution involves digging massive underground caverns and integrating complex systems. “What we’ve done is we’ve made an air battery where we dig a hole in a bedrock about 2000ft underground,” Curtis explains. “It’s about size, maybe a couple cubic football fields of avoid space.”
The Risk Reversal Innovation
Instead of following the traditional model, Hydrostor completely inverted the risk structure. “We kind of took a different approach, saying we’re going to develop and win the contracts and they don’t pay you a dime if you don’t perform,” Curtis reveals. This pay-for-performance model transformed the conversation from “Will it work?” to “What do we have to lose?”
Building Credibility Through Component Selection
To make this model work, Hydrostor had to carefully manage perceived risk. They deliberately chose familiar technology components: “There are no new widgets in what we’re doing. It’s more integration of proven components,” Curtis explains. This approach helped utilities understand and evaluate the technical risk.
The Capital Challenge
Of course, taking on all the performance risk created a new challenge: finding capital. But Curtis saw this as an easier problem to solve: “Our bet was that would be an easier path given the amount of money sloshing around looking for climate sort of investments.”
This bet paid off. Goldman Sachs and the Canadian Pension Plan provided $250 million in growth funding. As Curtis notes, “With our solution, we have a high enough return profile that it covers them for that risk.”
The Full Trust Package
The risk reversal strategy was just one part of a comprehensive trust-building approach. Hydrostor also:
- Got “the ability to wrap it, guarantee and warranty that it would work when it was built”
- Convinced “the construction companies that build caverns and mines”
- Secured commitments from “oil and gas equipment suppliers to sell us their equipment and stand behind it”
Making It Work in Crisis
This model was tested during COVID when the company had “only six or seven weeks of cash left.” The team’s commitment to their approach led them to “mortgage homes and put more money in to get the company to survive.”
The Results: Market Leadership
The strategy worked. “The fact that in Australia and California, we’ve come out on top on these pretty loud big procurements,” Curtis notes, “I think shows the value of our solution.” They’ve secured contracts worth about “two and a half billion dollars worth of contract signs for two facilities with more contracts to come.”
Lessons for Deep Tech Founders
Hydrostor’s approach offers key insights for founders selling revolutionary technology to conservative buyers:
- Don’t ask customers to take technology risk if you can avoid it
- Use familiar components to build credibility
- Find capital partners who understand and can price risk appropriately
- Build a comprehensive trust package beyond just financial guarantees
The key insight? Sometimes the most innovative part of your business isn’t the technology – it’s how you structure deals to make adoption inevitable. As Curtis says, “Many competitors just didn’t want to take that step because it can be hard and dilutive and it requires a lot of capital… But going the other way, you could sit there for 10-15 years and no one actually be your first customer.”