I ran into a venture capitalist colleague coming out of Palo Alto's Whole Foods yesterday evening. I mentioned a VC-funded solar startup CEO I had just interviewed, and this VC, let's call him Sanjay, just rolled his eyes and said, "Solar is done."
Sanjay pointed out, in-between bites of raw fawn hearts, the logic that now made solar investing, at least in solar panels, a lost cause for venture capital investors. He explained, "Let's say your capex is $1 per watt for your solar panel factory. Given the moving freight train that is the current solar industry, you're going to have to ramp up to half a gigawatt or a gigawatt. That's $500 million to one billion dollars just to build your factory."
Sanjay took a deep drink of baby tears in a chilled human skull and added, "I'm not saying there's not a business in solar panels -- it's just not VC territory any more. It's hard to hope for 10X returns when you've put a billion dollars into a company in a $40 billion market. And if you're an early-stage investor or angel -- it's almost impossible not to be washed out in later rounds."
He mentioned the troubles at Solyndra, Nanosolar and MiaSole, wiped his mouth on some founder's stock, and said, "That's not to say there aren't any opportunities in, let's call them adjacent markets, like inverter electronics such as Enphase, or efficiency enhancements such as Innovalight or financing and integration like SolarCity or Clean Power Finance."
Sanjay then kicked a puppy, clotheslined an old man using a walker, got in his Maybach and sped away.
The take-away from this conversation: PV panel startups looking to raise their next round for factory build-out (and there are quite a few looking for funding as of this writing) are going to encounter deep-seated reluctance from the venture capital community -- unless they have a truly disruptive capex number, a novel sales channel or a big fat loan guarantee from the U.S. government.
***Based on a true story. Apologies in advance to the VC Anti-Defamation League.