After a streak of strong growth years, the residential solar market hit a wall this year.
The final tally isn't in yet, but the list of casualties in 2017 speaks volumes: American Solar Direct, OneRoof Energy, NRG Home Solar, Direct Energy Solar's residential business, SolarCity (sunk into Tesla) and Sungevity.
That last one, Sungevity, capped a 10-year run with an acrimonious bankruptcy in March. At the time, the company's leadership refrained from commenting. Until now.
Founder and CEO Andrew Birch is finally speaking publicly for the first time.
Birch opened up at an October installment of Watt It Takes, a speaker series produced by Oakland cleantech incubator Powerhouse and Greentech Media. We're releasing the podcast and takeaways from an extended interview.
The Scottish investment banker-turned-entrepreneur has spent the last five months soul-searching. He's also been on a global solar power listening tour of sorts -- focusing on why residential solar costs are so high compared to other countries that have fewer permitting and bureaucratic hurdles.
At the Watt It Takes event, Birch narrated how Sungevity transformed from the dubiously named internetsolar.com into a top installer that deployed 25,000 systems across multiple continents. The startup was the first to use satellite imagery to design and sell systems online, saving money by avoiding multiple truck rolls to close a deal.
But the company burned through money in order to keep up with the rooftop-solar arms race. By 2016, Sungevity hoped to turn itself into a digital origination platform, using its considerable investment in solar software to help other companies sell and install solar. Building that "asset-light" platform required even more upfront capital, and the company never managed to secure a major investment to fund the idea.
As money ran out, a life-preserving $200 million infusion via reverse merger fell through at the close of 2016. There was no Plan B. The leadership found a buyer in the form of private equity firm Northern Pacific Group, which reconstituted the company as Solar Spectrum. Engie purchased the European operation.
The story doesn't end there: In August, NPG resurrected the Sungevity brand to organize a growing portfolio of solar companies. The European branch had accounted for 30 percent of sales in 2016; now it's as big as Sungevity was last year, Birch said.
Here is the advice he offered from this turbulent experience.
Listen to the full podcast with Birch's interview. Or read on below.
Prepare to get rocked by external events you can’t control
Sungevity grew for years based on initial seed funding from friends and family, supplemented by additional investments. But it never clinched the "big anchor tenant large check" needed to properly capitalize the business, Birch recalled. In the last few years, he spent 90 percent of his time trying to raise capital.
The reverse merger with Easterly Acquisition Corp. was supposed to solve that. The shell company had already raised public funds, so it could buy Sungevity and infuse it with more cash. Easterly approached Sungevity with the money and investor relationships already established, presenting less risk than a conventional IPO.
"Risk-adjusted, we thought it was the right thing for our shareholders for getting the capital and executing on the strategy and achieving the mission," Birch said in an interview after the Powerhouse talk.
And then Donald Trump was elected president just as Sungevity was pitching the deal to investors.
"I spent the whole night trying to figure out how to persuade the market that this would be good for solar,” Birch said at Watt It Takes. “We were really planning on that growth plan, and changing course from that plan was not a mathematical reality."
As Birch tells it, this political outcome sank the acquisition. He quickly focused on selling the company's assets while attempting to minimize harm to employees, customers and the industry.
"We found a home for it that was not a good outcome for a lot of the stakeholders, but looked after the most that we could," Birch said.
This was not the first time an unexpected event cut off a potential acquisition.
Three years in, a "large Asian conglomerate" approached with an offer. The deal was headed toward close after a series of negotiations -- until the CEO was fired by the family owners of the conglomerate.
"Things are going to be out of your control, are going to change things even when you expect them to play out like they should," he said. “Had we gone public a week earlier, had the family of a large conglomerate not been firing the CEO -- these would have been massively different outcomes for our shareholders and our partners.”
The lack of capital on hand (or profitable operations) limited the room to maneuver when those expected outcomes failed to materialize.
Be careful balancing societal goals with business goals
Sungevity was founded by activists who wanted solar to take over the world. More than half of the first 10 hires had activist backgrounds, Birch noted.
"What that became was a culture of people that not only believed in the technology and customer service, but were passionately motivated to make the company a success and make solar a success," he said.
Sungevity performed the role of solar ambassador with aplomb. It conjured up a solar-powered ice cream truck that gave out ice cream to spread solar cheer, and rolled out ad campaigns featuring smiling workers putting panels on the roofs of beautiful homes.
"We actively decided on a higher-risk plan that very nearly paid off," Birch said. "We were three co-founders who were highly driven by the mission, and our founding investors and most of our investors had a mission orientation, so we wanted...to work on ways to accelerate solar at massive scale."
While that mission drove spending, it didn’t generate profit in return. If Birch had accounted for the regulatory and political obstacles that arose, he would have dialed back on the growth until solar-plus-storage price parity arrived, he said.
That might have meant waiting for five more years as a smaller, modestly profitable solar company, rather than going for the grandest scale possible.
"We were early, SolarCity was early, Sunrun was early," he said. "We were all just at the very beginning of the solar adoption curve -- [too early] to aggressively step on the gas. Businesses that are stepping on the gas as parity comes in, as the regulatory environment in the states improves, have a much lower risk profile."
Then again, without the early entrepreneurs working out the kinks, that moment of parity would now be considerably further off.
"It's probably 20 investors and 10 groups of entrepreneurs who got us to this point, and behind that, of course, hundreds of scientists and engineers, who gave us $1-a-watt solar," Birch mused.
Don't say yes to the first offer that comes along
When Sungevity almost got acquired by the unnamed Asian conglomerate years ago, playing hard to get worked surprisingly well -- until it didn’t.
At that time, the solar lease concept had just been developed. Between the online sales process and the removal of upfront capital requirements, Sungevity was expecting massive growth around the corner.
“We said, 'No, we're not selling; we're going to 10x next year,' and they kept on throwing stupidly good numbers at us,” Birch said.
Sungevity again declined. But the back-and-forth continued until the money was too good to resist.
“If they want you, they will come back again, again and again, and it will get better and better,” he added.
The companies eventually started negotiations, but the deal fell apart. By this time, Sungevity’s valuation had crossed the $100 million mark, which meant the CEO had to seek approval from the family owners. It turned out they’d been angling to replace the executive. Instead of sending permission, the owners sent a dismissal notice.
Choose the right thing to celebrate...
Different metrics guide different decisions. Birch recalled moments when the team focused on market share data, cheering incremental improvements on that score.
"Make sure you're celebrating the right things as a team," he said. "With hindsight, celebrating those months where we broke even, albeit very briefly, and celebrating the team's achievements more, would have been smarter. At the time, the industry had been, and we were, very focused on growth. It felt like wins at the time."
The focus on growth drove unexpected outcomes. The company worked on shifting its operating costs to post-installation, to take working capital requirements out of the business. This was the oft-cited "capital-light" strategy.
But, Birch noted, they didn't keep close enough watch on the working capital of the business as it grew.
“When we switched on the lease, we did actually 10x the number of sales we made that year, but we didn't realize the business became a bank," he explained. "We became this capital-raising machine".
The plucky, customer-facing company started by solar activists suddenly had a hunger for working capital. The effort to feed that need drove the company through the final years -- until bankruptcy.
...And the right kind of risk to worry about
Picking the right risks to focus on isn't easy.
"There is a skill and a talent to not stepping on the gas every second of the day on the growth side, to staying alive, proving the unit economics of your product or your service at the right scale," he said. "When the time comes, you're going to place a bet, and you're going to hit the growth button. But you'll know how much money you need."
And how can founders check themselves?
"We could have had more diversity of our adviser group," Birch said. "Frankly, everyone should have more diversity in their adviser group."