By: Matthew K. Norris, Contributing Writer to MyEnergySolution.com
For many start up companies, venture capital financing remains one the signature corporate events in the history of the company. Not only does venture financing provide the company capital to advance their product but it is also somewhat of a stamp of approval that your company is worthy of venture capital attention. Venture capital also serves, for the most part, as a necessary step toward an eventual IPO or acquisition.
However, for more and more solar companies, venture financing is not an option. Investors are beginning to sour on publicly traded solar companies because they require so much capital to build the necessary infrastructure to build investor value: R&D; manufacturing facilities; raw materials. As a result, venture capital firms, who rely on huge returns from an IPO or liquidating event, are beginning to look into other industries for investment that require less capital such internet and software companies. As an example of this disparity, Google received only $25 million in venture funding before going public whereas BrightSource Energy Inc, which is building massiveplants in the California desert, said it has raised more than $530 million in five rounds of fund-raising.
So where are solar companies going for capital? Corporate partnerships are becoming the best way to finance the development of solar companies. For example, French power equipment maker Alstom SA became the second-largest shareholder in BrightSource with $130 million total investment including a $75 million investment announced last week. BrightSource has also raised money from Chevron and BP, among other strategic investors. This type of corporate funding not only helps to provide necessary capital but it also provides solar companies with strategic relationships that help bring their products to market faster as well as market credibility.
In addition, many solar companies are using these partnerships as a means to be acquired rather than deal with the uncertain future of going public. For example, last year Japan-based Sharp Corp bought San Francisco-based developer Recurrent Energy for $305 million last year. Recurrent had been majority owned by Hudson Clean Energy Partners, a private equity firm based in Teaneck, New Jersey. In addition, analysts expect that more established solar companies Suntech Power Holdings Co Ltd. or Trina Solar Ltd. might be in the market for smaller U.S. based companies needing a capital infusion such as Costa Mesa, California-based Axio Power Inc and San Francisco-based Foresight Renewables LLC.
So as the solar industry continues to progress forward with cutting edge technology, it is also blazing an separate trail by moving away from the traditional venture financing route. By moving more towards strategic corporate partnerships, solar companies are better positioning themselves to bring their products to market or simply be absorbed into larger, more established companies who can better leverage their technology.
Matthew Knox Norris is currently a Finance and Project Manager with Spindrift Partners, Inc., focusing on the bidding, development and management of U.S. government-leased properties. Prior to this, he was a member of the Executive Finance Development Program at Thermo Fisher Scientific where he was responsible for developing strategies to improve customer profitability and operational performance for the Fisher Healthcare business unit. Mr. Norris has an MBA from The University of Texas at Austin and a B.A. in Economics from Claremont McKenna College.