There are a couple centuries of progress separating wood-burning stove technology from MIT-bred logistics software. But the two are more closely related than you might think. In Goffstown, NH, a startup that just raised millions of dollars from two Boston-area venture firms is using the latest in supply chain management technology to build a national business around distributing wood pellets.
This lumber industry byproduct, made from wood waste that would otherwise decay and return methane and carbon dioxide to the atmosphere, is becoming an increasingly popular alternative to fuel oil or propane for home heating. And the startup, called WoodPellets.com, announced today that it has raised $11 million more to pursue the wood pellet market, in a Series B financing round led by Cambridge, MA-based Monitor Clipper Partners and joined by existing investor .406 Ventures of Boston.
Company president and co-founder Jon Strimling tells Xconomy that the cash, which augments a 2008 Series A round of $4 million, will help the company continue development of its website, which uses patent-pending software to customize the options offered to wood pellet buyers depending on their location. The company’s business model revolves around shaving a few cents off the costs of distributing the pellets to consumers; using advanced software to match stove owners with the most economical local sources of pellets allows the company to charge less and earn higher profits, Strimling says.
“I’m not going to say we invented the wood pellet—we didn’t. And I’m not going to tell you that pellets are high-tech—they’re not. But what we’re doing in logistics and distribution is significant, and that’s where we see the opportunity for huge efficiencies,” Strimling says.
Venture investors haven’t traditionally ventured into prosaic fields like home heating. But wood pellets are a unique commodity with a market that varies in several interesting and enticing ways from the markets for other fuels.
The pellets themselves are a small, dense, form of biomass, usually made from sawdust compacted into small cylinders resembling rabbit feed. The material was invented in the United States in the 1980s, but first caught on as a home heating fuel in Europe in the 1990s. Over the last few years, it’s been making new inroads in the U.S., where there are now several dozen manufacturers of home pellet stoves. Consumers like the pellets because they’re less expensive, on average, than cord wood, and because they are seen as greener, burning with greater efficiency and lower particulate emissions.
Most stove owners buy pellets in 40-pound bags at their local hardware stores or discount chain stores. Strimling’s company, which was formerly known as American Biomass and recently changed its main Web address from PelletSales.com to WoodPellets.com, is one of several that let consumers order the pellets online, but he says it’s the only one that can deliver to a variety of regions around the country. The company works with 25 pellet mills across the U.S., he says.
One of the unusual things about wood pellets, Strimling explains, is that the source material (sawdust) is extremely cheap, about $30 per ton, and yet the finished pellets are extremely dense, and therefore heavy and expensive to cart around. It’s not unusual for transportation to account for 75 percent of the pellets’ wholesale cost. “So managing logistics in this industry is not incidental—it’s the heart of it,” Strimling says. Things like the distance to the nearest mill, whether the pellets travel by rail or truck, and whether they’re delivered in bags or pneumatically blown into storage bins all make a big difference the final price WoodPellets.com has to charge, and in the amount of money it can make.
The company’s software, developed by a graduate student at MIT Sloan School of Management named Jie Wang, is designed in part to
