"Energy is an incumbents’ market," according to one venture capitalist (VC) nursing large losses on Solyndra, a US-based solar company that filed for bankruptcy last month.
The VC added that one cause of Solyndra’s failure even after $1.7bn in funding was the lack of large corporations from the power generation, utility or equipment manufacturing segments to help its factory and solar panel development, and also be potential customers.
The VC, which wrote off its equity investment about the time of Solyndra’s debt restructuring in February that left in place its present $783.8m of senior secured borrowings, said the portfolio company had turned down just such an offer in 2009 from French utility EDF to buy solar panels at a guaranteed price and invest to help build its factory. EDF was unavailable for comment.
Two years later, as Solyndra said in its bankruptcy filing, the market had changed and the company was unable to find strategic or further equity support or a way to support its debt as it continued to lose money.
EDF has instead backed Solyndra peer Nanosolar, providing $50m in April 2008 and a promise to buy its solar panels using a similar non-silicon, copper indium gallium selenide (CIGS) material.
Nanosolar has said its manufacturing costs will be below $1 per watt next year as its doubles production, compared with about $1.10 for silicon solar panel manufacturers, albeit at a lower efficiency rate.
Nanosolar’s investors, which had provided $400m to a company reported to be fundraising again this year, include VCs Benchmark Capital, Mohr Davidow Ventures and Energy Capital Partners, as well as corporate venturing backing from EDF Energies Nouvelles, AES Solar, Belecrtric and Plain Energy.
Solyndra’s investors were almost all top-tier VCs – Argonaut Ventures (39%), Madrone Partners (13%), US Venture Partners (9.2%) and Rockport Capital Partners (7.3%), according to the filing.
Virgin Green, a corporate venturing affiliate of UK-based "branded venture capital" conglomerate Virgin Group, was listed among the 35 largest unsecured creditors of Solyndra, having invested in the company’s equity. Virgin Green declined to comment.
Solyndra had raised $709.4m in venture financing between May 2006 and February 2009, according to the bankruptcy filing. It subsequently received a $535m Department of Energy loan guarantee from the US Federal Financing Bank, while venture investors invested a further $198m to secure the loan.
In July 2010, Solyndra issued $175m of convertible promissory notes to various investors. The company restructured in February 2011, raising an additional $75m.
But despite selling more than 500,000 panels and having sales of $250m since 2008, Solyndra was still losing money.
In its bankruptcy filing,Solyndra said: "The combination of general business conditions and an oversupply of solar panels dramatically reduced solar panel pricing worldwide [by more than 50% between June 2009 and August this year].
"The oversupply was due, in part, to the growing capacity of foreign manufacturers that utilised low-cost capital provided by their governments to expand their operations (see chart).
In response, Solyndra was forced to reduce its average selling prices to remain competitive. "In addition, the reduction or elimination of government subsidies and incentives for the purchase of solar energy, particularly in Europe, negatively impacted the availability of capital for PV [photovoltaic] system owners, further reducing demand for Solyndra’s panels.
"Finally, Solyndra’s ability to timely collect on its accounts receivables was negatively impacted as foreign competitors offered extended payment terms, resulting in Solyndra’s customers refusing to honour their previously agreed payment terms."
Prior to the lay-off of substantially all the Solyndra work-force on August 31, the company had about 968 full-time and 211 temporary employees. The fall-out from bankruptcy, however, is more wide-reaching than to the Solyndra staff made redundant.
As the largest VC-backed failure, according to data provider Thomson Reuters, Solyndra and its senior executives have been subject to investigation by the US authorities and the subject of debate by politicians after the $535m Department of Energy loan, which made up 1.3% of its clean-tech portfolio of $40bn.
Solyndra’s executives have declined to talk about the company since the investigations began. The VC invested in Solyndra said: "The government will get the backlash so will become less involved. Clean-tech companies, therefore, need strategic investors more.
"There are three lessons from Solyndra’s collapse -the need to have a commercialisation person, not just a technology person, leading the company; the incumbent energy players need to be involved; and if the objective is scale then which model will work for VCs that back them, as building factories is expensive?"
As the head of corporate venturing at one of the world’s largest oil producers said: "Everyone is waiting for that inflection point to be reached with one of the solar technologies so that investors can narrow down the players in whom to invest. No one will want to get into a Solyndra situation."