Simon Phelan, 35, is the visionary behind Hometree, a home services enterprise that has been operating for nine years and competes with major players like British Gas and Homeserve. The company offers boiler breakdown insurance and specializes in the financing, installation, and upkeep of heat pumps, batteries, and solar panels. To date, Hometree has successfully attracted approximately £85 million in venture capital, including investments from Legal & General Capital. Recently, it obtained a substantial £300 million debt facility from Barclays and CPP Investments, a prominent Canadian pension fund, aimed at significantly boosting its funding for domestic renewable energy projects in the UK over the next three years. With expectations of reaching £53 million in revenue for the year ending this April, Phelan shares insights on how he persuaded large City institutions to support a relatively young firm.

While many companies rely on equity, Hometree operates as a technology-enabled services business rather than a software venture. Phelan emphasizes the importance of managing capital efficiently, expressing that it is not advantageous for shareholders when large amounts of their equity are allocated to long-term assets in homes. Moreover, equity financing is often the costliest form of capital, as it leads to dilution for both the founder and shareholders.

Phelan points out that banks and capital markets are increasingly eager to invest in genuinely sustainable assets, but they are facing a shortage of scalable projects. After eight years of building Hometree, the company reached a level of scale and credibility, particularly in the home gas boiler insurance sector, allowing it to approach banks for discussions on financing.

In the U.S., many banks have provided similar financing options, and Barclays has executed several deals there. When exploring opportunities in Europe, particularly in Germany and Spain where Barclays had previous engagements, a venture capital investor introduced Hometree to Barclays representatives at a conference. This led to an invitation to Barclays’ head office in Canary Wharf, where they met the head of their European securitization practice, who oversees sustainable financing initiatives. With a commitment to allocate £1 trillion towards sustainability by 2030, Barclays was keen on exploring the potential of developing a new asset class for green financing in Europe.

Financing environmentally friendly home improvements presents a significant opportunity, but the lack of established players in the market made it imperative for investment firms to decide between waiting for solutions to materialize or partnering with emerging businesses to help build a scalable infrastructure.

Despite existing challenges related to heat pump regulations and government backing, Phelan envisions a future where Hometree contributes to the transition from gas to electric heating over the next few decades. In 2015, Phelan outlined a business plan centered on “Financing green home improvements,” which has remained a core part of Hometree’s mission, even as the market seemed premature for such a venture initially. He transitioned from a focus on residential solar energy, leading to the current emphasis on heating solutions after subsidies for solar were retracted.

A major hurdle for Hometree has been the ongoing prevalence of gas heating systems compared to heat pumps. Recognizing the difficulties of operating purely as an installation service—where marketing is vital to attract customers for infrequent projects—Hometree sought to innovate its business model. This led to the development of insurance products to engage a customer base interested in heating and home electrification, alongside building a network of engineers trained in heat pump installation.

Phelan notes that their success is not purely coincidental; extensive preparation played a key role. Following a significant equity funding round led by Legal & General, media visibility aided in establishing credibility with potential debt investors. The substantial capital available on their balance sheet demonstrated Hometree’s ability to invest in necessary systems and teams to handle expectant growth.

During the due diligence phase, debt investors wanted insights from Hometree’s equity shareholders and its board regarding governance and operational controls. Notably, Hometree’s chairman, Tommy Breen, previously led Homeserve during its £4.1 billion sale to Brookfield in 2022, which adds to the investor confidence.

For debt investors, earning returns through interest is paramount, yet fostering robust relationships with the Financial Conduct Authority and ensuring strong governance structures are critical to the overall strategy. Hometree has built a fully FCA-regulated insurance arm, which has reinforced its commitment to compliance and governance—traits that Phelan believes are essential for longevity in a market where misaligned incentives can lead to failure.

Looking ahead, Hometree aims to onboard 500 to 1,000 providers of solar, heat pump, and battery solutions onto its platform within the next few years. Achieving this will not only enhance the credibility of their distribution network but also ensure compliant operations that underpin the expected returns on investment from partners like Barclays and CPP.

Simon Phelan discussed these insights with Richard Tyler, editor of the Times Enterprise Network.