The 2019 Wharton Startup Challenge: Finding a Way to Cool India More Efficiently

Aerate is the business venture of Wharton business and Penn engineering undergrads Ashwin Kishen, Connor Sendel, Yann Pfitzer, Jake Fine, Sam Weintraub and Spencer Collins. Aerate is also the Perlman Grand Prize winner of the 2019 Wharton Startup Challenge. The students received $30,000 for the grand prize and $15,000 in legal, accounting and strategy services to help bring their idea to the marketplace. Aerate was one of eight finalists chosen from a pool of nearly 30 semifinalists to pitch their idea in front of a live audience and a panel of expert judges. In addition to the top prize, Aerate also won $10,000 for Best Undergraduate Team; $10,000 for the Robert S. Blank New Venture Collaboration Award; and $3,000 for the People’s Choice Award.

The showcase runner-up was Strella Biotechnology, which aims to reduce food waste and optimize the supply chain by detecting produce ripeness. The venture won $15,000 for the prize and another $15,000 in legal, accounting and strategy services.

Other showcase winners include:  

• Innovation Award: Minimize, $10,000 for the prize, $15,000 in legal, accounting and strategy services.
• Launch Prize: Halo, $10,000 for the prize, $15,000 in legal, accounting and strategy services.
• Social Impact Prize: Text-911, $10,000.
• Crowd Favorite Award: Boost Scooters, $2,000.

Half of Aerate’s team — Kishen, Sendel and Pfitzer – joined the Knowledge@Wharton radio show on SiriusXMto discuss the idea behind their startup and their collective desire to alleviate the devastating effects of climate change. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge@Wharton: What was the genesis of Aerate?

Connor Sendel: From a business perspective, it all started with identifying this problem of cooling around the world. As engineers, we really were thinking about it from an engineering perspective. We saw this problem and looked at a bunch of different ways to possibly solve it. It ended up going really well from an engineering perspective, and the business kind of followed suit.

Ashwin Kishen: For me, it was a personal motivation. I’ve spent a lot of my life visiting back and forth between the U.S. and India. I started to realize that here in the U.S., where it’s much cooler, I had much more comfortable temperatures in my home. Nice air conditioners. Turn it on blast in the summertime and forget about it. When I’d go to India, it was a bit of a shock being in that heat and having to be comfortable in that. But over time, I’ve seen more and more air conditioners come into being. That was the genesis of an idea for our Senior Design Project here at Penn Engineering.

We took that concept, did a lot of research and realized that if air conditioners continue to have the same efficiency as they have today, you’re looking at a half-degree Celsius increase in global temperatures caused by air conditioners alone by 2100. That’s an unacceptable risk to the planet.

Knowledge@Wharton: And it’s a component I don’t think many people even discuss.

Kishen: Exactly. Everyone’s familiar with the environmental impact of your car, but do you really think about how much your air conditioner is causing, beyond it being a chunk of change you’re spending once a month on your electricity bill?

Knowledge@Wharton: What do you hope that you’ll be able to do?

Yann Pfitzer: In the beginning, this was a Senior Design Project, so we were really just trying to see if we can make something work at all. We took a project that had a pretty big risk. Right now, almost all ACs use the vapor compression cycle, which uses a lot of harmful chemicals that have a very large global warming potential. We wanted to revisit air conditioning as a whole and completely eliminate any chemicals.

We looked at a bunch of different technologies that were out there, read a lot of research papers, and spent about three weeks just digging through the literature to see the alternatives. We settled on membrane dehumidification and evaporative cooling.

Sendel: In the next 30 years in India, we’re expecting over one billion new air conditioners, which is a crazy number, but it’s a result of a number of factors. You look at climate change as necessitating the air conditioning. You look at the rising incomes in developing countries, specifically India — you have 55 million Indians every year entering the middle class. These are people who look at air conditioners as key to their quality of life, especially given this climate change.

Then you look at things like urbanization, government initiatives. There are all these factors compounding that big number. If those one billion air conditioners are as inefficient as air conditioners today, as Ashwin mentioned, it would be impossible to stay under the 2 degree Celsiusthreshold of global warming. That’s really bad news.

Knowledge@Wharton: There is an ongoing push in India to make sure that all parts of the country have electricity, which is necessary for this buildout.

Kishen: Air conditioning is one of the drivers of needing to install more power stations. Basically, peak power is what limits the amount of stations you need. If you’re able to decrease the amount of air conditioning required, you can drastically alter the number of power plants a country needs, which is why India is a great place to focus on energy efficiency. It’s a reason why we’ve worked with power companies in India. It’s a reason that people are focusing on this problem. Basically, when you get home in the evening at 5 p.m., everyone in the country turns on their air conditioner, and that’s that huge power spike that you want to reduce.

Sendel: Up to 70% of the energy used at any given time in India could be for cooling. The government is really looking at technologies like this, where they can pull that peak down, because it reduces their costs on the power grid and reduces risk to their energy infrastructure.

Knowledge@Wharton: So there is a recognition by the government that is a problem they have to solve?

Pfitzer: Absolutely. I think some papers have worked out that just the increase in energy demand due to air conditioning alone will necessitate 600 new medium-sized power plants to be built in India by 2050. Obviously, the government has a huge interest in trying to increase the efficiency of air conditioners, maybe change people’s behaviors towards air conditioners.

Kishen: It’s one of the challenges that we faced with air conditioning as a market, and cooling and energy efficiency. The people who get the most gains from this — power companies, the government — aren’t necessarily the ones that are putting up the chunk of change and buying an air conditioner. So, matching incentives is a real challenge. It’s one of the reasons that investors sometimes aren’t interested in cooling. It’s why some companies have failed in this region. It’s the reason we’re focusing on India, because the government has identified this incentive mismatch as a real struggle for companies, like Aerate, which are focused on bringing in new technologies to cooling. They’re trying to combat that by doing things like buying in bulk so that they’re pushing these efficient air conditioners into people’s homes more quickly. India is also sponsoring things like the Global Cooling Prize, which is an ongoing international endeavor to address the problems we’ve talked about here.

“When you get home in the evening at 5 p.m., everyone in the country turns on their air conditioner, and that’s that huge power spike that you want to reduce.”–Ashwin Kishen

Knowledge@Wharton: Let’s go back now and talk about the competition and its process. Tell us about pitching this idea to judges who could end up being investors.

Sendel: It is a multistage competition. There is a preliminary application to get in. In our case, we entered the competition through a different competition here at Penn called Pennvention. Essentially, we gave two pitches to panels of five judges, all of which are industry experts, whether it’s in VC, the energy industry, or generally business, like professors here at Wharton.

From there, our idea was selected as one of the finalists. There were 27 semi-finalists and then eight finalists. From there, we pitched to four more industry experts — really cream of the crop, VC entrepreneurship advisory board members here at Wharton — and got a great chance to interact with them and got some really positive feedback. It really did help generate more and more traction and leads for us.

Knowledge@Wharton: What are the next steps?

Pfitzer: One of the big next steps for us is the Global Cooling Prize, which is a competition sponsored by the Indian government and [Virgin CEO] Richard Branson. It’s kind of their equivalent of the Gates Reinvent the Toilet initiative. We’ll be applying to that over the summer, and see where that takes us.

Kishen: That takes us into deeper technology development than what we have done so far. We only had about six months to generate this entire company idea and develop three prototypes of systems, so there’s a lot of work to be done in terms of taking a prototype and bringing it up to a market-ready, home-ready system. That’s what we want to focus on in the next six months.

Knowledge@Wharton: Realistically, is this an open market for you?

Kishen: I think the cooling market today has been relatively — I don’t want to say stagnant. They’ve really focused on driving down costs and getting these units into people’s homes because there was massive growth around the world. But the pressure on efficiency and getting it up beyond what it is today is very much a new drive.

Knowledge@Wharton: Can you take this idea to the business side and think about the cooling issues that companies have to deal with?

“We wanted to revisit air conditioning as a whole and completely eliminate any chemicals.”–Yann Pfitzer

Pfitzer:  The cooling prize is one option for us. But we’re going to try to reach out to more people in India to get business development on the ground there.

Sendel: One of the really cool things about what we’ve designed is that it is scalable. A lot of our efforts this year were focused on taking these promising research results on a very small scale, then applying them generally to an actual system that could cool a room. We feel pretty confident that the technology we’ve built now could continue to be scaled for commercial applications.

Kishen: I’d love to give a little explainer of the technology. Evaporative cooling has been used around the world for thousands of years. It’s an extremely efficient cooling method. You just evaporate a small amount of water into air. Unfortunately, these systems don’t work well in humid environments, such as in the monsoon season in India, or right here in Philadelphia today.

What we’ve introduced is a membrane dehumidifier. It’s a new method of dehumidifying, where you separate water from air using vacuum suction across a specialized material. Using that combination of membrane dehumidification, which is done extremely efficiently, and evaporative cooling done with this dry air stream that comes out of the membrane dehumidifier, we’re able to cool using a completely new process that eliminates refrigerants, is more efficient and saves money for the consumer.

There’s definitely a cost curve, economies of scale consideration. Haier, LG, all of these companies, build millions of units a year. Right now, our system would be much more expensive on a COGs (cost of goods) basis. But if you could get it up to scale, it’s on a comparable price point for manufacturing.

Sendel: Looking at the reduced energy use, you can extend that out to a savings number. Because we use substantially less power over the 10-year lifespan of an air conditioner — which is what we expect ours to last and is the industry standard — we expect up to $1,000 savings for the user just on energy alone.

Knowledge@Wharton: You are focusing on India, but there are a lot of other countries that could use this as well.

Sendel: India is definitely the biggest contributor with the one billion air conditioners I mentioned. But globally, that number is 3.3 billion air conditioners in the next 30 years. That is a truly crazy number of air conditioners, right? And those air conditioners, on current trends, will triple the amount of energy being used for cooling. When you’re looking across the world to other places, Indonesia and China are huge contributors. South America is a big contributor. Further down the line, even a whole lot of Africa. There are more and more opportunities to continue to use sustainable technology like this one to cool.

Pfitzer: The largest growth we see is residential air conditioners. People are flocking to cities in a lot of these developing countries, and one of their first purchases once they start having a higher income is a residential air conditioner. That’s really what we’re focusing on right now. The technology is fairly scalable, but just achieving the scale we have today with our current technology was a fairly large breakthrough. We’re already really happy with how far we’ve come in terms of scale.

Knowledge@Wharton: What has this experience been like for each of you?

Sendel: I think I can speak for all of us when I say we’ve really enjoyed it, but it’s been a lot of work. A good way to think about it is we’ve been working [the equivalent of]an extra full-time job on the side of our studies here for the last six months, so we’ve really been working hard on it. The first four months of that were tech-only because we didn’t necessarily mean for this to turn into a venture, a company. It was a Senior Design Project, and we just thought it would be cool to build a new, super-efficient air conditioner, just because we think of that as engineers.

As we dug more into the market side of that, and then understood that our technology did have this huge potential and was actually working, the transition to the business side was a turning point for us and also super-exciting because we started seeing these huge numbers that I’m talking about. The billions of air conditioners around the world and, of course, all the money that goes with it.

Knowledge@Wharton: You’re also talking about social impact.

Kishen: It’s certainly a motivation to want to address the challenges that are faced outside of our relatively comfortable space here at Penn. I think designing for places that aren’t necessarily similar to where we are is really challenging. Having had some experience in traveling and seeing the world was really beneficial, and it’s something I brought back to Senior Design. When we were brainstorming ideas, I tried to focus on not just what my life is like here and what problems I have — because to be honest, I have relatively few problems from a mechanical engineering standpoint. But focusing on what other people are experiencing in this world was a huge motivation for me and, I think, for others on our team.

Pfitzer: We were looking for a project that would have a high impact, so we were willing to take on some risk as to whether or not we could make something successful. We were considering water harvesting technologies as some of our projects. We were thinking of car seats. I can’t remember some of the other ideas we bounced around, but it was a long period of brainstorming.

“We feel pretty confident that the technology we’ve built now could continue to be scaled.”–Connor Sendel

Knowledge@Wharton: Are you already starting to receive interest from people and companies within India for this product?

Sendel: In some ways, it can feel like almost too much attention.

Kishen: Too many people are really excited about us. I’ve had people call and ask, “Can I install an air conditioner tomorrow? I’ll hold off on buying one.” And it’s like, “Well, hold on. If tomorrow is 10 years from now, sure.” So yeah, there has been a lot of enthusiasm, which is very uplifting for us.

Knowledge@Wharton: Can you think about what will happen beyond 10 years?

Sendel: I think in 10 years [we’ll have] a very sustainable business. We’re hopefully looking at a little bit shorter timeline, ideally in the market in the next two to three years. I think that’s kind of the critical timeline. One of the first big inflection points in air conditioner growth is in the next two to three years. But long-term, I think there is a huge implication for this, especially when you consider the fact that right now in India, just 7% of the people own air conditioners. When that number gets to 90%, 100%, if this isn’t the technology you have, it’s really going to be catastrophic.