Smart Thermostat Software Startup EcoFactor Raises $3.5M

When 4-year-old EcoFactor, which makes software that intelligently manages connected thermostats, officially launched last November, a lot of folks took notice — apparently including investors. On the heels of raising $2.4 million in December, EcoFactor announced this morning that it has raised another $3.5 million from RockPort Capital Partners.

In the company’s funding filing in December EcoFactor said it was in the process of raising $4.5 million, so this total of $5.9 million in funding is slightly more than expected. The company has a strong product, but the funding climate is also better: Greentech venture investments have bounced back in the first quarter of 2010, with $1.9 billion invested in 180 companies globally according to the Cleantech Group — that’s up 83 percent over the same period a year ago.

One of the reasons EcoFactor is so compelling for investors is that its software is relatively low cost to produce. The service is based on its smart algorithms that can continuously manage a home’s connected thermostat throughout the day, tweaking the settings ever so slightly to shave off energy consumption, but maintain a comfortable temperature for residents.

Utilities, like EcoFactor’s first customer, Texas-based Oncor, are buying the service to provide demand response (DR) programs. Unlike traditional demand response programs — where a DR provider would ask a building owner (mostly industrial and commercial right now, but sometimes residential) to turn down their air conditioning, lighting or other appliances during a specific time on a specific day — EcoFactor cuts home energy consumption from heating and cooling (the bulk of a typical energy bill) in tiny increments. As EcoFactor’s CEO John Steinberg explained the concept to us last year the difference is traditional demand response concentrates on five days a year, while EcoFactor focuses on 365 days a year.

The startup’s smart algorithms take into account things like outside weather, the physical characteristics of the home, and manual input from the home owner, and can tweak the thermostat every minute. The service only needs a home Internet connection and a connected thermostat to work. Over a month EcoFactor says it can save 20-30 percent off of the heating and cooling costs on your bill and you won’t even notice.

The potential for savings, without the inconvenience, is largely why the startup has a chance to build a consumer-facing brand. To that aim, EcoFactor is focused on working with third party companies, like broadband service providers, telcos and cable companies, which want to move into energy management and are looking for a partner. Verizon has said it is interested in adding energy management to its fiber service (for more on Broadband Service Providers Are About to Ride the Home Energy Wave, see GigaOM Pro, subscription required).

EcoFactor says it will use these latest funds to execute on the deals it’s made. Steinberg will be on a panel I’m moderating tonight for the Churchill Club on the smart grid down in Mountain View, and I’ll be handing out discount codes for our Green:Net conference on April 29 in San Francisco. Come say hi, grab a code, and learn more about software and innovation for the smart grid.