Private Company Financings - 2008

To follow up on my post regarding valuations, and their recent....shrinkage...I wanted to share this fantastic report I got from the law firm, Cooley.  I've seen this data (or something similar) in a number of different formats, but I think their graphs do a nice job of conveying how drastically the world has changed.

Some of the other highlights include:

• Down or Flat Rounds come in at a whopping 52% of all deals
• Late stage deals receiving a big valuation drop, and an increased concern that even those values are too high, with almost 30% requiring 2x+ liquidation preference
• Along with these liquidation preferences, investors also made sure they were protected with full ratchet anti-dilution coverage (from an entrepreneur's perspective, the worst kind) with 15-20% of investors in C & D rounds making sure to take precaution

There is a ton more great info in the report, which I've hosted in a new box.net account and that you can access here.

I'm off to Xconomy's Cleantech in the Northwest event.  Hopefully I'll pick up a bunch of new stuff to share...

GB

image and hosted file, courtesy of Cooley

Smart Grid & Utilities

Earth2Tech posts an overview of a discussion topic at Green:Net - Green:Net Power Grid 2.0 Panel.  I wish I was there for the conference, because I think they are bringing up a number of interesting topics for the venture community.  Case in point, Andrew Tang, Sr. Director of Smart Energy Web @ PG&E, brings up an important theme, that I think a lot of entrepreneurs and start-ups underestimate when getting into the utility sector.  Tang says that the road to working with utilities will likely run through one of the existing large businesses who supply the power companies (e.g. GE, Siemens, Areva, etc.), and the point he's trying to make is this:  Utilities are VERY risk adverse.  This implies a number of barriers to market entry that cannot be stressed enough:

• Existing relationships - this isn't the best avenue for a salesperson cold call...
• Understanding of Energy & IT - the grid isn't the Internet, and can kill people if things go wrong, you need to get it right the first time
• Patience - These are going to be looooooong sales cycles, everything is try before they buy, so make sure your venture has enough capital to get you through to PO and delivery 
• Prior sales - while this may seem like a catch-22, having existing utility customers will be quite the boon
• Be ready to scale - When you do get an order, you need to be able to deliver in an expedient manner at utility scale

Several of the more prominent and successful startups targeting the utility market (Silver Spring, eMeter, Gridpoint, etc) have seen some initial success through both existing relationships, as well as a strong understanding of utility energy networks.  I'll also venture that they've also got a fair amount of patience, given that the three companies I mentioned have all raised a substantial amount of money (Silver Spring and Gridpoint have each raised over $100m), I think they have the wherewithal to make significant headway before running into trouble.  

Calling all PNW Cleantech Startups

As I mentioned before, I've been working in the "cleantech" world for a little over 18 months now, but I'm just starting to become more active in the community.  In addition to my recent exploits in blogging and on Twitter, I've decided to join the Clean Tech Open to help promote the green-focused entrepreneurial community.  Essentially, the Clean Tech Open is a competition where entrepreneurs and start-ups within the cleantech space can get valuable exposure, advice, complimentary services, mentoring, growth capital for their business.  A more complete list of benefits can be seen here.

I've joined the new Pacific Northwest regional arm of the Clean Tech Open as co-Recruitment Chair (along with Steve Gerritson of enterpriseSeattle).  We're heading recruitment efforts to drive innovative entrepreneurs to join the competition in the Pacific Northwest (in cooperation with our counterparts in the Rocky Mountain and California regions).  The competition is primarily focused towards early stage companies - less than $300,000 in outside (angel or venture) funding - and provides meaningful cash and service prizes to help get these business models off the ground.  So if you have an idea or are working on something in your basement in your spare time, this is a perfect opportunity to learn a ton, get some great exposure and compete against your peers.  More details on entry requirements here.  

Pacific Northwest Entrepreneurs - I seriously advise you to enter the Clean Tech Open for our region.  In addition to the basic benefits and services, three winners will receive $50,000 in cash and services, and go on to compete in the national competition, where the winner will receive $250k in cash and services!  I think this is a great concept on both the national and regional level, and can't wait to see how my first year unfolds.  If it's anything like the past three years (awarded $2.72 million of cash and services, alumni have gone on to raise $125m of venture capital), then I am ready to be blown away. 

We need innovators in the Pacific Northwest to step forward!  Help make the PNW a cleantech destination.

GB

DOE Loan Guarantee Program Success!

Speaking of the stimulus plan and DOE grants/loan guarantees, Earth2Tech points us to this interesting development.  Apparently the CIGS thin film solar company, Solyndra, has garnered the first DOE loan guarantee (a whopping $535m!) for its new manufacturing plant.  The Company says the loan will help finance over 70% of the costs for the 500MW facility.  According to the CEO, this has been in the works since fall 2008, when Solyndra was one of 8 finalists, and is a substitute for the $350m of equity they were trying to raise, around that same time (perhaps valuations were shrinking back then more than I previously thought?)

I've heard that Solyndra has quite the backlog ($1bn+), but to date, they haven't delivered much on those contracts from what I can tell.  This money, along with the $600m that they've raised previously, should jump start those production efforts.

The Company claims a number of advantages to their products, including ease of installation, reduced problems with wind, increased panel density, etc.  I wonder what their power output / cost would look like compared to a 1-axis SunPower tracking system with a comparable footprint...

Greenvolts Delay

Greentech Media posted an article about CPV player Greenvolts, noting that they are delaying their 2 MW plant until mid-2010 in order to continue "tinkering" on the project.  This highlights a number of interesting tidbits about the Company (i think) and the market. 

First, commentary on the company.  Kudos to them for holding off on the project if the technology is not ready.  There is a lot of complexity in CPV systems, especially when you're concentrating the sun 625x.   Similarly, not many CPV projects have been installed today, and installations at scale have been even more rare.  That means this install is going to be watched by every industry participant:  utilities, other CPV players, and PPAs (or what's left of them).  While a failed plant would not be a deal breaker for the whole industry, a high profile set back like this would not go unnoticed.

I think this delay is also affected by the market.  I'm guessing the system will likely cost in the neighborhood of $15-$20 million, using a cost basis of around $7/watt installed.  Even though they raised $30 million in equity capital about 6 months ago, it's unlikely they want (or are able) to burn 2/3 of their round putting in a pilot facility.  I have no idea what their burn rate is, but I imagine between operating costs and other capex, that round was not meant to support the 2MW plant. Given that they probably got their round done before any major compressions on valuation started to happen, insiders are unlikely to want to test the waters in the equity markets.  Debt markets being what they are, I think it would be a stretch to get project finance (especially w/o new equity commitments).

I expect similar announcements from emerging solar technologies throughout the remainder of 2009.  Hopefully the stimulus package will help, even if it only helps alleviate the tension on the debt markets.

GB

Photo courtesy of GreenVolts

Speaking of Downrounds

Talked with a company in the smart grid space the other day.  They recently closed a $20m+ round at a $90m post, all common stock.  Apparently they are going back out for some additional capital at a $10-$15m pre.  That's probably a bit of an a-typical downward adjustment, but the point is clear - downrounds will abound in 2009, or with slightly more positive spin, flat is the new up round...

GB

Liquidity for Cleantech? Yes, at a price

About a week ago I twittered (@greenbanker) about how venture and growth capital is available, but it is damn expensive, even for great companies.  Looking back, I should have said, growth capital is available for great companies, but it is damn expensive.  That may seem like a subtle difference, but the latter provides much more accurate commentary on the market in today's world.  Let me explain.

Venture funds, growth funds, and private capital of all nature has gone through an epic transformation over the past 18 months.  Looking back to the end of 2007...First Solar's stock had risen almost 800% since the beginning of the year and was trading above $260 at a modest 59.6x REVENUE.  Industry efficiency leader SunPower had enjoyed a similar run, trading over $100, up about 250% on the year.  Things were great.  Solar!  It's finally here.  

This public market enthusiasm was echoed in the private markets.  Venture capital had steadily been increasing its investment allotments to the solar sector, and the number of firms looking to invest was expanding rapidly.   This led to rather intense competition for deals, and hundreds of millions of dollars were deployed in capital intensive business models.  As such, high flyers like Solyndra and Nanosolar were out on the road, looking for big growth rounds under lofty $1b and $2b valuations.  

Fast forward to September, 2008.  The markets fell precipitously for the next 7 months to present.  First Solar is down to $125 and about 8.0x revenue (and at 20x EBITDA they sound more like a software company…).  The sector is down about 80% from its peak.
  

Sometimes you can just chalk up the few sector down rounds to poorly executed business plans by management, markets not developing the way they should, or just plain bad luck.  In this case, it’s quite easy to see why investors are so unwilling to give uprounds.   Venture funds are tightening the screws on their own investments, while they’re simultaneously out bargain hunting.  I’ve heard from a number of venture sources “I simply cannot take an upround in front of my investment committee right now, they would shoot me” as well as “Yes, (Mr. Entrepreneur) you’ve executed perfectly, but your valuation in 2007 is inconsequential at this point, it was from another time, another market, and I’m just not willing to pay up to invest in your company.”  And why would they, when they can invest in best of breed, liquid, public market companies at half price.

The problem is, the seller’s mindset has not yet adjusted to these new prices.  Much like when the housing shock first hit, many homeowners were in denial that the value of their own home had been affected, entrepreneurs and investors are slow in realizing that the $75 million post on the B round they did 12 months ago on their pre revenue cleantech idea is nothing more than numbers on a page.  If this new round of capital is desperately needed, then it’s time to swallow hard, because it’s not coming at an attractive price.  More later…