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Solyndra could be the biggest VC loss in history

When hip cell phone startup Amp’d Mobile went bankrupt back in 2007, the company lost its venture capital investors about $360 million. When solar maker Solyndra files for bankruptcy (they’re aiming for next week) it could lose close to three times that amount, or a big chunk of its VC backers $1.1 billion (we’ll see how much any assets go for). That could make it the largest equity loss for venture capitalists in history.

As VentureWire puts it in this article, there’s a new term out there called “the Solyndra Effect,” which describes the sickly feeling that the limited partners of the venture funds that backed Solyndra are feeling right now. The reality is that losses that large can make fund raising really difficult for VCs, particularly in an environment when some funds have struggled to raise money.

Solyndra’s VC and private capital investors include Madrone Capital, RockPort Capital, the George Kaiser Family Foundation, CMEA Capital, Redpoint Ventures, U.S. Venture Partners and Virgin Green Fund. The involvement of the George Kaiser Family Foundation, Solyndra’s biggest backer, is the reason why Republicans are calling foul, as Kaiser has supported the Obama administration.

While Solyndra could still sell its assets for some amount of money, not many solar execs and VCs I’ve talked to think the assets are worth all that much. For the case of solar manufacturer Evergreen Solar, which also filed for bankruptcy recently, its secured debtors are trying to recoup $165 million in notes from an asset fire sale and its unsecured debtors are praying that Evergreen’s assets might exceed that figure, leaving something for them. But as our GigaOM Pro Green IT curator Adam Lesser put it for Evergreen: “Good luck,” getting more than that out.

Another huge loss for VCs was when fiber optic network company Western Integrated Networks (WINfirst) raised $889 million in the broadband build-out era of the late 90?s, and then fell into bankruptcy. WINfirst was able to sell its assets for $12 million.

Solyndra's factory full of panels in April

Solyndra also has reportedly drawn down $527 million of the $535 million loan guaranteed by the Department of Energy. Loan guarantees essentially serve as a promise by the government to make good on a loan if the company can’t, and typically enable better interest rates and lower costs than would otherwise be available to a company for project financing. But Solyndra actually borrowed the loan from the Federal Financing Bank, part of the Treasury Department, so basically the government was acting as a lender to the company directly. So there’s that $527 million to pay back, too, (on top of the $1.1 billion in private funds) if there are any assets out of the Solyndra bankruptcy.

Perhaps you’re wondering how investors could keep funding a company that couldn’t draw enough interest from investors to fulfill its IPO plans back in the Summer of 2010. Beyond the somewhat unexpected change in the economics of the solar industry (panel prices dropped dramatically while Solyndra grew), once investors put money into a company, it can be a difficult decision of when to pull out and when to put in more money.

Say, a fund puts in $50 million in a round, and then Solyndra later says it needs another $50 million to be able to expand production and deliver an economy of scale to reduce manufacturing costs, and some day recoup the fund’s initial investment. Does the fund double down and try to save the initial investment or pull out early on and cut its losses? As recently as March of this year, VentureWire reports that at least three of Solyndra’s backers — Madrone Capital, RockPort Capital and the George Kaiser Family Foundation — put more money into Solyndra in a recapitalization round. When you’re stuck in a hole, sometimes its hard to know if digging is going to help get you out, or send you deeper.

32 Responses to “Solyndra could be the biggest VC loss in history”

  1. Solyndra was heck of a lot cheaper then Cheneys Oil war which was costing $8 Billion a month (Basically a subsidy to the oil companies from the “Energy task Force”) At last count the tab is about $3.7 trillion of taxpayer cash

  2. Jeff Williams

    Meanwhile, the Green movers put their faith in DC. Has it occured to any of you that while Nancy Pelosi’s personal wealth, the spearhead behind your movement, grew 62% last year that she might be the Bernie Madhoff (and for that matter, Obama) of the VC’s your so distraught about? How does it not correlate, when the company received 533 billion from the EPA then goes bankrupt. Let the scandal begin.

  3. John A. Bailo

    And yet First Solar seems to be doing ok. This appears to be another case of the White Swans no longer being able to control it all…you can’t invest in “The Market” any more or even “An Industry” and expect the wave to carry you along. You have to make specific decisions about a company and an investment. Apparently no one really dug deep enough here and it was made worse by Obama Administration’s meddling.

  4. Steve Rabago

    There have been many more huge losses in the VC world. It should be an embarrassment to the Obama Administration and a fools investment by the Government that provided a $500,000,000 plus loan guarantee to boot!

  5. I believe a contender for the record — in present value — is still Candescent. It burned through over $600 million from the mid-to-late 1990s:, which would equate to ~$1 billion in today’s money. That was all venture capital-type money from major firms (Sevin Rosen, NEA, et al.) and corporate investors (Sony, HP, etc.) to develop a new type of flat-panel display (FEDs). Unlike Solyndra, the company never produced anything.

    • NamethatVC

      Ironically, it’s the same lead VC, i.e. Tom Baruch of CMEA who led both Candescent and Solyndra into bankruptcy. He loves big, capital intensive science experiments that incinerate money. Unfortunately both failed along similar dimensions of coming up against Asian manufacturers, who, well, know how to manufacture to scale much more cheaply. Both companies also tried to create a breakthrough technology that wasn’t.

      Unfortunately, dim-witted LPs, government agencies and tag along VCs also played similar roles.

      Didn’t we see this movie before?

  6. You also have to add Webvan, the online grocer from 1999 dot-com era. It gulped down nearly $800M from VCs before it went bust. I’m sure, the present value of $800M would surpass $1B.

  7. John-Ross Cromer

    As bad a deal as it looks, its a better deal than Evergreen Solar. Evergreen had the form factor of a traditional module, but was more expensive to produce. Solyndra is the winner in one specific case: white reflective roofs, needing non-penetrating solutions at less than 3lbs dead weight. In other words, where you can’t have a traditional product. Their problem is that they expanded beyond their niche market, thinking they could compete with the mainstream market.

    They distributed through 4 main roofing companies, which is unlike the rest of the market. They didn’t do enough client education on how Solyndra optmizes project development incentives and commercial demand savings (where it saves clients more $ than traditional systems in most markets).The US market doubled in size in 2010, and still shrunk globally. Solyndra went under because they failed to execute.

    Lastly, the Department of Energy has published many reports since 2008 about how every manufacturer in the solar industry is about to go belly-up. In our training programs, we strongly recommend against investments in solar manufacturing. There are 150+ solar manufacturers on the market. How many companies make air conditioners?

  8. Mike Keenly

    It’s clear that the VCs who kept investing, particularly in the later rounds, got caught up in their own self-created frenzy. There’s no reason for anyone to ‘double down’ since once the investment is made, it should be considered a sunk cost, and ignored with respect to future investing decisions. Apparently, some of the VCs forgot what they learned (or didn’t learn) in their MBA Economics courses.

  9. If we really want to have true energy independence through clean energy, we really need to have another “Kennedy Space ” moment.

    Have a clarion call, challenging America to achieve 1000-fold greater efficiencies in solar technologies; providing economic incentives for institutions, companies, teachers and students of math and science; and creating research centers for all forms of renewable energy.

    • Matt Liotta

      The problem is that solar cells can’t be more efficient than 30%. We concentration that number can be raised to 40%. But, either way, efficiency is not going to rise that much.

      I’m not sure that should be the goal anyway. It will be easier to cut the price in half than to double the efficiency.

  10. Don’t think its bad news its simply the result of an industry starting to mature that needs to get its act together which sadly Solyndra did not.

    The Chinese competition blame is not the whole story and is misleading and if they did not build this threat into their business plan that says very poor management and guides from the directors and board

    Basic due diligence , which again should have been in there business plan, on its alleged competitive edges would have revealed that

    Solyndra depended on

    1. High Competitor Silicon prices to support Solydra’s expensive costs ( they have crashed and prices of any material always fluctuate why no game plan to offset this )

    2. Modular flat roof installation design ( Now many manufactures do this , what was their plan when this was obviously going to happen. Construction installations of any type are a 0 productivity game in a brutally competitive market)

    3. Government subsidies at all levels in all markets ( they are evaporating both in Europe and in the US and you can never base a solid long term business plan on a subsidy )

    With premium prices at twice and three times industry norm for a product that only performed at 60% of its competitors it was a train wreck waiting to happen.

    Most of the subsidies and investments seem to have gone into an expensive robotic plant that without a huge market for its product was in deep trouble to begin with. As many have found to their cost the building ( albeit the showiest and the most visible ) is only part of the product and never forget what you are really trying to do which in this case if it was compete with china’s cheap manufacturing using robots that’s suicidal but might make a great fiction novel . The legal fallout from client installations is also going to prove interesting

    Political Hubris, before the fall, indeed and when the political establishment falls in love with an idea ( sic ) without a good ( constantly reviewed ) plan then the business types need to run for the exits.

    I would suspect in the C11 review that the pressure to build the huge facility came from the gov backers who wanted a showpiece , and crank out stuff ,and that simply drained the cash from where it should have been deployed . ” the master plan ” if they had one.

    Lets hope someone can sort out something from the lesson wreck as the opportunities are boundless

    • This is really spot on. I’m not anti-subsidy, but I’m anti “government attempting to be prescient venture capitalist”. To me, the core assumptions underlying Solyndra were fundamentally flawed. Believing commodities will stay expensive as a core tenet of the business plan is bizarre. Believing you can scale a more expensive technology faster than a technology that has been scaling at learning curve rates for decades is even more bizarre.

      I realize there was some sexy technology here and I feel horrible for the workers that lost their jobs, but this was a very, very strange business plan. It’s failure is not stunning at all.

  11. Jared Ritchey

    What I can’t understand is how guys like me who have viable real working and truly competitive products cant find $5 dollars from investment companies while companies like this that are poised for failure get hundreds of millions.