Navigating An Equity Investment Round In America’s Booming Solar Market

Solar energy is a booming business across North America. Installations grew 30 percent across the United States in 2014 for the industry’s biggest year yet, but industry expansion also brings consolidation – Ernst & Young reports industry deal values hit a four-year high of $177.1 billion in 2014, with investment and acquisitions both predicted to keep rising in 2015. 

A flood of firms has entered the market in recent years, and is turning into a steady flow of investment announcements. But a crowded market can be a tricky one to secure transformative investments – so how should a solar CEO approach the process? 

My company recently completed a second multi-million dollar commitment from Tenaska, one of America’s largest private energy companies. This equity investment round was a transformative process for Soltage, with Tenaska’s investment funding corporate growth and facilitating our plans to deploy $250 million in roughly 125 megawatts of new solar projects in return for a controlling interest. Along the way, I gleaned four lessons to pass along to other solar CEOs seeking major investments. 

Patience Is a Virtue

Attracting investment is a standard process for business growth and development, but in a competitive sector like today’s solar industry, it’s better to be right than to be quick. Some upfront planning, and patience through the process can help companies secure the right investment partner to meet growth goals. 

CEOs should consult their board of directors to identify the company’s resource needs, consider investor options compared to overall market conditions, then put forth a reasonable corporate raise goal and timeline to meet forward business objectives. This final aspect may be particularly important for companies looking to complete projects before the expected expiration of the federal Investment Tax Credit at the end of 2016. While it wasn’t a driving factor for Soltage, it may represent a go or no-go deadline for other solar developers. 

When it comes to the capital raise process, nothing happens exactly as it’s initially planned out, but if you know how long you can take on the deal and what you need to secure, you’ll likely come through the other side with the right partner and ability to grow. 

Your Next Best Partner May Be Your First Best Partner

The best place to start looking for private equity-level investment may be the same investors who helped fund your start-up. This was the case for my company, as Tenaska was one of our first investors

Beyond the size of a major investment compared to a start-up funding round, financing partners returning for a second (or third) investment want to see they’re investing in a new stage of the business. Initial investments may represent venture capital funding into a business model poised to grow, but subsequent funding rounds require evidence of proven project deployment over the long-term. 

Running a boring company can be one of the most important strategies in this regard. CEOs seeking that next level of investment should set clear and transparent targets, consistently meet or exceed them for several years, focus on bottom-line profitability, show ability to grow and capture market opportunities at scale, and build a team of high-caliber professionals committed to the business plan and mission. When you’ve got all this in place, it’s time to seek investors. 

For Soltage, showing growth in a competitive market was our biggest hurdle in securing a major investment, but we did this by completing several substantial funding rounds for solar assets with blue chip investors, demonstrating ability to turn investment into growth and returns. 

Maintain Control Even without a Controlling Interest

CEOs seeking major investments have likely either founded the company or overseen major growth. Either way, the prospect of ceding controlling interest to investors may seem a step too far – but it’s not. In fact, this can be a positive development for the company and your ownership. 

Most reasonable investors bet on management teams, and invest in companies because those teams have a proven history of execution. Investors won’t want to spoil that secret sauce, and will likely give management the latitude required to run day-to-day operations and increase market share. 

CEOs looking to land larger investors should remember whether or not a group takes more than a 50 percent ownership of outstanding shares is far less important than how big the overall pie could grow over time, or what your management rights and responsibilities are for making decisions and running the business. 

You’re Methodical with Your Company, Be the Same with Investors

Increased investor interest in the solar industry has become crowded during this consolidation phase, and makes finding the right partner a challenging prospect. But think back to how you’ve methodically grown your company, and apply those same principles to securing an investor. 

Understand your company’s points of value, how to communicate them to the marketplace, and know what sort of investor will drive the most value to your company through capital assets, strategic relations, or industry experience. Most importantly, give yourself enough runway (in terms of time and operating capital) to get a deal done without being constrained or forced to make a deal you otherwise wouldn’t have done. 

The process can get heady at times, but always being able to reflect back on the goals of your raise will keep you and your company disciplined enough to make the right decisions in a busy market.

Lead image: Compass. Credit: Shutterstock.

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Jesse Grossman co-founded Soltage and has served as chairman and chief executive officer since our founding in 2006. Jesse oversees the design and execution of the Soltage business model, the corporate and project finance activates of the firm, as well as sales and acquisition. Prior to co-founding Soltage, he worked in venture development and management, project finance, marketing, and resource use strategies in diverse locales including East Africa, Indonesia, and the East and West Coasts of the continental USA. Jesse has an undergraduate degree in Biology from Carleton College and a MESc from the Yale School of Forestry and Environmental Studies with Business Development certification from Yale’s MacMillan Center. Mr. Grossman speaks four languages and is a published author and speaker in the field of emerging markets and renewable energy.

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