A History of Thermo Companies
The years preceding 1984 saw heightened energy price volatility, leading to the United States’ enactment of PURPA, encouraging Americans to seriously consider energy conservation. Against the backdrop of this paradigm shift we saw opportunity and founded Thermo, our name inspired by the First Law of Thermodynamics – the law of conservation of energy.
True to this principle, over the years Thermo has grown from electricity generation into a
diversified group of companies and assets, converting energy in the form of time and capital into value. Since inception Thermo has uncovered opportunities to develop or buy assets where others either failed to see the potential, were unwilling to do the hard work necessary to create value, or were structurally unable to hold onto their position.
Early Energy Investments
Our first development was a $60 million 76 MW cogeneration facility at the University of Northern Colorado. Later, construction of two more Colorado projects began at a total cost in excess of $250 million. In 1996 a fourth Colorado project began operations at a Conagra facility.
These early projects made Thermo the largest industrial consumer of natural gas in Colorado and to control input costs we began developing gas reserves. These operations grew to over 150 wells and 563 billion cubic feet (Bcf) of reserves and were consolidated within the cogeneration companies. The internally hedged fuel costs drove both profitability and cash flow higher.
Ultimately the cogeneration and gas assets were merged through a series of transactions into KN Energy, which later merged with Kinder Morgan. By the end of Thermo’s cogeneration era, the initial $42,000 investment had generated value of over $800 million in cash and stock. Thermo continues to hold a substantial equity stake in Kinder Morgan today.
Thermo Diversifies into Real Estate
In the mid 1990’s, we began diversifying opportunistically into real estate in the western United States, purchasing two city blocks located in the LODO neighborhood of Denver. The area was experiencing the early onset of a robust redevelopment boom. One of the blocks, located adjacent to Denver’s Coors Field baseball park which was then under construction, was the site of the Union Pacific Freight house. Thermo redeveloped the site into restaurants, clubs, condominiums and Thermo’s headquarters. The Ice House project was the second block, another example of a redeveloped historic property that played a role in making LODO a great neighborhood. Just walking out of Thermo’s offices today is evidence that an even greater opportunity to deploy capital could have been realized.
In the late 1990’s, real estate efforts extended beyond Denver to Los Angeles and Montana.The Los Angeles investments, including the Roosevelt Building and a block near the Staples Center, were a response to Japanese investors aggressively selling U.S. real estate to relieve their balance sheet stress. These investments were short lived but very profitable. In Montana, Thermo created Gallatin Preserve, a 1,632-acre parcel located in Big Sky and situated between The Yellowstone Club and the Spanish Peaks Mountain Club. The property was comprised of ten 160-acre private mountain ranches, each with a five acre building envelope. Thermo sold Gallatin Preserve and the Denver restaurant properties in 2022 after determining that real estate markets were likely peaking. Capital invested into real estate since inception was roughly $100 million, which has generated cash of nearly $230 million and additional unrealized value from properties still owned.
Industrial Businesses
Thermo has also been active in industrial businesses including backing a senior management team that had been a long-time supplier to the cogeneration business, with an investment to purchase two related companies, United Engines and UE Manufacturing (collectively “United”). United is in the diesel engine distribution and power generation businesses. Combined revenue in 2001 was $50 million and grew to approximately $250 million by 2007 when the investment was exited. The management team did an excellent job of expanding United into adjacent businesses. The stake in United was sold in 2007 to the management team and other financial buyers, generating total proceeds of six times the original investment in less than six years.
Also, because of the history in cogeneration, Thermo was able to identify an opportunistic business model purchasing, inventorying and reselling gas turbines. This business has been productive with a modest investment generating a cash on cash return of 3.5X within 5 years. While somewhat smaller relative to the other energy-centric investments, the working knowledge developed continues to be put to profitable use in other ventures today.
Branching into Telecommunications
Following the telecom crash in the early 2000’s, Thermo began surveying the market for assets under duress where significant capital had been deployed but equity value was not realized. In 2002, the company purchased e.Spire for $15 million into which approximately $1.6 billion had been invested and reorganized it into Xspedius.
Ultimately about $100 million was invested into Xspedius, which was sold to industry bellwether Time Warner Telecom in 2006 for more than $500 million, with Thermo receiving $260 million of Time Warner Telecom stock. Shortly before that transaction, Xspedius spun off 100% of FiberLight to Thermo, which began actively managing its modest 1,258 route miles of fiber. Thermo developed FiberLight into one of the largest fully independent regional fiber providers in the United States with nearly 18,000 route miles in more than 30 metro areas and approaching 78,000 near net buildings. In 2022, Fiberlight sold to Morrison & Co. for approximately $1 billion.
The Time Warner Telecom stock was held through its subsequent merger with Level 3 Communications, for a combination of cash and stock. Three years later, CenturyLink and Level 3 merged in another cash and stock transaction. Centurylink has subsequently changed its name to Lumen and Thermo remains a significant shareholder. In all, Thermo has generated more than $425 million in cash proceeds and dividends from the Time Warner Telecom stake plus the remaining Lumen stock that is still held.
In 2004, Thermo invested in bankrupt low earth orbit satellite service provider Globalstar. This has become Thermo’s largest investment to date with nearly $800 million at stake. The original investment in Globalstar was made at a fraction of Globalstar’s invested capital, similar to the investments in gas turbines, fiber and real estate. Beyond the core satellite operations, Thermo saw significant long term upside potential from the company’s spectrum assets. When Globalstar’s 1st generation satellites began to prematurely fail, Thermo stepped up with more equity and sought financing for a portion of the 2nd generation constellation build. Unfortunately, this was at the beginning of the financial crisis. Despite all the hurdles Globalstar faced, the new constellation was financed and launched utilizing a novel structure backed by the French government. The company has also successfully concluded its regulatory process with the FCC, and ten other countries, which permits it to use a portion of its satellite spectrum for cellular services.
Globalstar’s unique collection of satellite, ground and spectrum assets justified the significant investment to date. With Thermo’s leadership Globalstar secured a marquee wholesale customer for its satellite capacity. This customer is utilizing the satellites to offer the world’s first direct to handset services including emergency SOS, FindMy location, roadside assistance and texting outside of cellular. Also under Thermo’s leadership, Globalstar has licensed technology from XCOM Labs and brought on their executive team including Paul Jacobs and Matt Grob, formerly the CEO/Chairman and CTO respectively of Qualcomm, to lead Globalstar. Also joining Globalstar are many Qualcomm alumni who are collectively considered to be the most talented wireless engineering team in the world.
Today’s Investment Themes
Considering the long period of excess liquidity leading to extended valuations in the late 2010s, Thermo shifted gears and began to look for smaller investments, often in relatively new companies where we could help build equity value alongside management teams. A few themes developed which encompass many of the investments including American-based 5G technology, energy storage and Artificial Intelligence.
In reviewing the potential ecosystem for Globalstar’s terrestrial spectrum business, it occurred to us that there was an opportunity to create a US-based competitor to Nokia, Ericsson and Huawei. Thermo’s first investment in this era was Pivotal Commware. Thermo led the Series A capital raise for Pivotal, a spin out from Intellectual Ventures. Pivotal makes advanced 5G antennas. In keeping with this theme we also invested in Recon Dynamics, an IoT sensor technology, XCOM Labs with its 5G RAN and VR technology, and Global Telecom, a module and CPE vendor. This area of investment had the added benefit of adding opportunities and insights for Globalstar. Ultimately, the investment in XCOM Labs led to the transaction with Globalstar mentioned above. The other companies remain independent but we continue to look for opportunities to improve their chances of success while also helping our other portfolio companies.
Thermo’s investment in Recon Dynamics led us to our energy storage company, ARES Inc. ARES has developed and patented a new gravity-based energy storage system which is an efficient technology utilizing no Chinese influenced rare earth metals or lithium. Long duration energy storage technologies like ARES are critical for two important macro trends – increased use of renewable energy and growing data center demand from AI. We expect ARES to be a substantial contributor to Thermo in the future.
What has now become general consensus, Thermo began to investigate AI many years ago. We led a capital round in a cybersecurity technology called SeQure Inc. SeQure utilizes advanced processors and proprietary algorithms to detect anomalies in networks faster than anything else available today or on the intermediate horizon. Our contacts in both the telecom and banking sector led us to believe that we could help shorten what is a long sales cycle business. The technology has been deployed and has identified vulnerabilities in systems missed by other sector leaders. Our initial investment in Global Telecom had already given us insight into the vulnerability of critical infrastructure to bad actors which increases our conviction that SeQure’s technology will be deployed widely.
Following the investment in SeQure, we have helped its parent company Entanglement, Inc strategically divide into numerous distinct businesses using common technology but addressing different market verticals. Thermo has made further investments and is on the board of parent company Entanglement. Entanglement is leveraging its proprietary algorithms to solve other difficult optimization problems including LLM training, semiconductor design, compute scheduling and financial markets. While spectrum represents the foundational asset for Globalstar, Entanglement’s algorithms and other IP are their key assets and we will seek to monetize them in as many ways as possible.
Thermo has also backed wireless and mobility-focused venture capital fund Stormbreaker Ventures, and has done a number of smaller investments through partnerships with Blue Investment Group and Dialectic.
