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Summary:

A quick scan of the top cleantech deals for the near record first quarter, sent cold shivers up my spine. The deals may be getting done, but are we sure investors are making money? Three of the biggest deals represented 17 percent of the quarter’s dollars.

danger
GreentechMedia and Cleantech Group this quarter reported near record levels of cleantech venture capital investment. Nearly $2.6 Billion in deals.  No, quantitative easing hasn’t made the dollar slide that much yet, the numbers are real – mainly because the solar and transportation deals vintage 2004 to 2007 are getting deep into their capital intensive cycles. But a near record $2.6 billion, so everybody’s happy, right?

Personally, a quick scan of Greentech Media’s summary of the top deals sent cold shivers up my spine. The deals may be getting done, but are we sure investors are making money? Let’s take three of the big ones and the only ones where Greentech Media quoted valuation numbers: BrightSource, Fisker, and Solyndra. Between the three of them that’s 17 percent of the announced Q1 deal total by dollars.

BrightSource Numbers

BrightSource Energy (Oakland, Calif.) raised a $201 million Round E for its concentrated solar power (CSP) technology and deployment, bringing its total funding to more than $530 million in private equity. That funding is in addition to a federal loan guarantee of $1.3 billion. The investors include Alstom, a French power plant player, as well as the usual suspects: Vantage Point Venture Partners, Alstom, CalSTRS, DFJ, DBL Investors, Chevron Technology Ventures, and BP Technology Ventures, together with new investors with assistance from Advanced Equities. VentureWire reports that the latest round values the company in excess of $700 million.

Brightsource has been a darling for a long, long time. It is easily the farthest along, most experienced and most ambitious of the solar thermal developers.  So what about the numbers? Well it’s announced 2.6 GW of PPAs with SoCal Edison and PG&E. And they’ve started construction on the first phases of the 392 MW Ivanpah development in the Mojave desert. That’s the good news.

Here’s the bad news: $700 million pre-money valuation + $201 million in round 5 means only a 1.7x TOTAL valuation for investors on the $530 million that has gone in. Or the previous round investors are now in aggregate up 2.1x on their money for a 7 year old company after the 5th equity round is in. Not sure who, but a few of those rounds got rocked, and not in a good way, or else we just did four wonderfully exciting 15 percent uptick rounds in a row. But it gets worse.

This first plant, the one they’re headed to an IPO on, still hasn’t come online yet, let alone finished phase I. The DOE has committed $1.37 billion in debt to it, as well as NRG Energy’s $300 million in equity, and with more equity capital needed. So once completed, the venture investors after their meager 2.1x uptick in the first 7 years, are between 3 to 8 years in on their venture investments and now own part of a heavily-leveraged state-of-the-art $2 billion plant that has one of the highest costs on the market.

The solar power plant will probably throw off revenues of say $125 million per year — Perhaps $140-$150 million at the high end (estimates have varied on capacity factor and price). OK, so that sounds almost passable. But now let’s build the cashflow statement.

Add in Brightsource’s estimated direct labor at $10-$15 million per year ($400 million over 30 years from their website), plus maintenance/repairs at 0.5 percent of assets per year of another $10 million (and hope to God it can stay that low – that would be a tremendous success in and of itself), then add on debt service on $1.37 billion, assuming a guarantee that’s only available by the government has a 30 year amortization at 5 percent, and that eats up another $80-$90 million per year. So we’re at $100 to $120 million in annual costs, and $125 to $140 million in annual revenues. And we haven’t included gas, water, or any contribution to overhead, which are all non-trivial. And don’t forget we’re building this out in 3 phases over several years.

So after all that, if it works, and if it works well, those investors MAY see a net of $20 million-$40 million per year in cashflow from that plant by 2014/2015, which they can use to cover plant overhead, and fuel bills. Then the remainder is then split between them and NRG to cover corporate overhead and then pay taxes on. Or they may be losing money every month. But we’ll make it up in volume, right?

But there is hope:

1). Pray for lots and lots of investment tax credit, ITC (30 percent on the $600 million in non-subsidized capital would shave almost a whole 10 percent off the total cost!)

2). Pray for an IPO (and think VeraSun, sell fast).

3). Pray for a utility who overpays for the development pipeline.

Two good articles with some more history from Greentech Media here and here.

Fisker’s Numbers

Fisker Automotive (Irvine, California), an electric vehicle maker, raised $150 million at a $600 million pre-money valuation (according to VentureWire), from New Enterprise Associates and Kleiner Perkins Caufield & Byers. The firm previously raised $350 million in VC, as well as a $528 million loan from the DOE.

Terrific, another high flyer. Same analysis, but this one’s younger, only four years old, and only on investment round 4, which is good, since they’ve now apparently got a total valuation of only 1.5x investors money, or 1.7x total uptick for the prior 3 rounds of  investors. But since they’re only in so far for 1-4 years, not 3-8 like in Brightsource, they’re ahead of the game ;) .

But once they take down their $528 million in DOE debt (which this last tranche was supposed to be the matching funds for), they’ll be at a soul-crushing 110 percent debt-to-equity ratio. Oh, and did I mention that the real way to calculate debt-to-equity assumes equity is net book value? And since with these startups we’re using contributed capital, one should think of our debt-to-equity ratios as very, very (very) artificially low – but I didn’t want to scare you too much.

But look on the bright side:

1). If they really hit their goal of 15,000 cars per year (at a sticker price of $95,000 per car) and have typical 5 percent to 10 percent automotive operating margins, they could be solidly into junk bond land at 4 to 7x debt to EBIT. (Assuming of course you take it at face value that they will build a $1.5 billion/year automotive company with no more cash). Of course, they apparently have a whole 3,000 orders placed for the $95,000 car, and are currently planning closer to 1,000 shipments for the first year. Compare that to the Nissan Leaf and Chevy Volt, which costs closer to $30,000 each. Chevy has been planning on shipping 10,000 Volts in 2011, and 45,000 in 2012.  Nissan has targeted first year Leaf production at 20,000, and apparently had more than that many orders before they started shipping.

2). Pray for an IPO.

3). Buy Nissan stock.

Solyndra’s Numbers

Solyndra (Fremont, California), a manufacturer of cylindrical solar PV systems for industrial and commercial rooftops, closed $75 million of a secured credit facility underwritten by existing investors. Solyndra had annual revenues exceeding $140 million in 2010 and has shipped almost 100 megawatts of panels for more than 1,000 installations in 20 countries, according to the CEO.

I’m certainly not the first, or the only one, to cry over Solyndra.  And I’m pretty certain I won’t be the last.

Founded in 2005, with close to a billion in equity venture capital into it now, I believe they were on F series before the IPO was canceled last year? With this $75 million Q1 deal (in secured debt, of course, their investors are learning) they’ve announced $250 million in shareholder loans since the IPO cancellation. And the early round investors have been already been pounded into crumbly little bits. But it’s worse.

If I followed correctly, the original IPO was to have raised $300 million, plus pulling down the $535 million in DOE debt. Here less than 9 months after that process canceled (could that be right?), they’ve now raised 80 percent of the cash the IPO was planning, except all in debt, and grown revenues nearly double since starting that process. My only response to this was OMG. So they’re at a 26 percent debt-to-equity ratio for a money losing company, where debt exceeds revenues by a factor. Pro Forma for the DOE loan fully drawn they’re at 44 percent, and something like 6x debt to revenue. These are crushing numbers for healthy profitable companies. It gets worse.

Go read their IPO prospectus. Teasing out who invested how much in each round from each fund, and the size of those investors’ announced funds, plus the number of funds that “crossed-over” and did their follow-ons from a newer fund, and you quickly realize there are several venture funds that literally tapped out on Solyndra, likely either hitting house or contractual maximum commitments to a single deal. The concentration risk in Solyndra is possibly enough to severely pound multiple fund managers, not just Solyndra.

Please somebody please tell me I’ve got the numbers all wrong.

This post originally appeared on the Cleantech Blog.

Neal Dikeman is a founding partner of Jane Capital Partners LLC, a cleantech merchant bank whose clients have included the technology arms of multinational energy companies. He has served as a director of several technology companies, is chief blogger for Cleantech Blog, named one of the 50 Best Business Blogs by the London Times, and chairs industry portal Cleantech.org.

Image courtesy of zigazou76.

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  1. I think all these ‘solar investments’ are really stealth 501-3(c)s pretending to be for profit entities.

    But then a loss pencils better tax-wise than a charitable deduction anyway…right?

    If they really wanted to make $$$$, they would be investing in real commodity opportunities like the spark spread between the price of retail electricity and natural gas….not racing each other for the title of the Bigge$t Lo$er with the utility rever$e auction proce$$.

    Does that sound unkind? It is not.

    Unkind is following thru with good money after bad when you should cut your losses and look for other more straightforward investment opportunities.

    My 2 cents/kwh.

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