Proptech Startup Arch Closes $6M Seed Round Off Demand for Heat Pumps

Veteran of the solar industry sees vast potential in helping HVAC contractors sell the machines

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Homeowners’ growing demand for heat pumps has boosted investor interest in Arch, which announced Thursday that it has closed a $6.2 million seed round.

Gigascale Capital and Coatue led the round with Floodgate, ReGen Ventures and MCJ Collective also participating.

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San Francisco-based Arch, a data intelligence platform that acts as a sales tool for home heating, ventilating and air conditioning (HVAC) contractors, will use the funding to grow its engineering team, reach new customers, and make heat pumps the clear financial choice for contractors and homeowners, said Phil Krinner, co-founder and CEO of Arch.

“The contractor basically uses it as the daily sales tool where they analyze a home, size the HVAC system, and basically create an entire system designed before they even go on site,” Krinner said. “When they do go on site, they basically finish up the last 10 to 20 percent, but already have an entire home analysis done before they arrive at the homeowner’s house.”

Arch and its investors see great growth potential for the startup. Electric heat pumps are outselling gas furnaces, according to the company, as consumers navigate roiling energy prices and increasingly frequent heat waves. Plus, heat pumps can be a critical decarbonization technology that cools and heats with significantly lower carbon emissions (the source of up to 93 percent of climate pollution) compared to traditional air conditioners and furnaces that rely on fossil fuels.

Started in 2022, Arch rolled out its first product in September 2023, said Krinner. “Since September, we have the first two customers on board and they’ve processed $4 million of sales through the platform. That’s not our revenue, but what has been processed through the platform by the contractors.”

The long-term cost of heat pumps compared to other HVAC options also drives interest in Arch, he said.

“When I started, I invited 15 contractors to my home and asked them, ‘Hey, can you give me a quote for a gas furnace and a quote for a heat pump?’ ” Krinner said. “The average price for gas was $8,000 and the price range for heat pumps was $20,000 to $40,000. Holy crap. What am I going to do here? This is way more expensive. Only if the operating costs are lower will it actually make sense.”

Krinner then asked the 15 contractors if they could estimate the savings from heat pumps, but none could do so. “And that’s actually where we started, because we were like, ‘Hey, we need to get to transparency.’ It will actually help the contractor to close bigger deals and it will allow the homeowner to make a financially responsible proposition.”

Krinner believes the seed round was also successful because Arch has a lean, seven-person, full-time team and he has global experience as a contractor.

“I’m coming from the solar industry,” said Krinner. “I’ve been a contractor myself and I literally installed solar power plants around the world, including in Iran, the UAE, the U.S. and in Europe. In fact, I installed the largest solar power plant in Europe in 2016 and the largest solar power plant ever built in the world in Abu Dhabi. My co-founder is a serial founder in the software industry, so we really combined the construction knowledge and mechanical side of things with the software knowledge.”

Part of the startup’s appeal to its clients is that its business model connects the contractor with homeowners, rather than trying to be an online marketplace for both, he explained.

“And I think that resonated quite a lot with the investors, because it’s usually a little bit more of a robust business model,” Krinner said. “The customer acquisition cost is lower than when you try to target 250 million to 300 million homes in the U.S. It’s just very expensive to get all these homeowners versus the contractor base, which is quite smaller.”

“Between falling technology costs, energy volatility and compelling incentive, heat pumps are becoming a no-brainer for households looking to save money,” Victoria Beasley, partner at Gigascale Capital, said in a statement. “The Arch team is well positioned to take advantage of an exponential growth curve in heat pumps that is set to mirror the growth in solar.”

Philip Russo can be reached at prusso@commercialobserver.com.