Evergreen Solar Warms Up To $18M

While solar power may be well suited for a science fiction novel, Wall Street and venture capitalists don’t like reading that far into the future. With VCs churning investments at a record pace, a primary concern of investing in young start-up companies is the cost and time needed to invest in researching new technologies. An even larger hurdle is the complexity of understanding the business.

“Venture capitalists are burdened by such a high volume of deals,” said Mark Farber, president of Evergreen Solar Inc., a Waltham, Mass.-based manufacturer of solar panels. “If they don’t know the technology, they aren’t going to spend a lot of the time reading about it.”

No Coverage, No Bank

Because investment banking expertise in the area is equally thin, Farber elected to go solo in petitioning VCs for money to begin commercial production of the company’s solar panels.

“Investment banks have not built a lot of resources devoted to advanced energy technologies,” he said. Concerned about the length of time needed to raise the $18.4 million Evergreen landed in its fourth and final round of private financing, Evergreen and its bankers “mutually decided to keep talking and aim for an IPO.”

“Energy companies have not been particularly attractive to the financial markets over the past few years,” Farber added.

Indeed, the road through the private equity market has been as long and circuitous as the company’s business plan. Founded in October 1994 by three former Mobil Oil executives, the privately held company used the $12 million raised in its first three private rounds to fund three years of research and development followed by another two years of pilot production. An IPO is still a couple of years away, Farber said.

While the financing cycle may seem excessive by current standards, Evergreen got plenty of support from existing investors Arete Corp., Zero Stage Capital, Nth Power Technologies, Rockefeller & Co. and Swiss Reinsurance.

“Evergreen is a huge success story,” said Robert Shaw, president of Bethesda, Md.-based Arete, one of the few venture capital firms willing to make seed-stage investments in advanced energy companies. “To go from a start-up to production in six years is incredibly fast.”

Evergreen’s operations also got a big lift from new investors Kawasaki Heavy Industries Inc. and Swiss-based SAM Private Equity. Kawasaki, which infused $5 million into the round, also inked an exclusive agreement to market Evergreen’s solar panels in Japan. With much larger competitors such as Japan’s Kiesera and Sharp Corp. already operating in the world’s largest solar market, the collaboration is seen as critical to breaking into the Japanese market. Because solar energy is three times more expensive than conventional electricity generated from a city’s power grid, Evergreen’s key competitive advantage is its low-cost manufacturing process.

“The manufacturing technique will ultimately give us a substantial cost advantage,” Farber said. “Our leading product line will be thinner, lighter easier to install.”

And with Evergreen expected to ramp up production later this summer, Japan may only be the beginning. Two billion people, or 70% of the population of the developing world, still rely on kerosene, fuel wood and batteries for light and power. In addition to providing power to remote markets, industry-wide growth of 15% has been fueled by environmental purchases.

Few IPOs

And while the lack of equity offerings from the sector – just two IPOs since the beginning of 1998 – is a near-term concern, the performance of those IPOs is encouraging a turnaround for advanced energy.

“There’s a lot of stuff going on in the private markets,” Shaw said. “There have been a lot of funds formed to invest in fuel cell technologies.”

Interest in fuel cell technologies that reduce the cost of generating electricity is traced to the success of Plug Power Inc.’s stock. After initially garnering a lukewarm reception when Goldman, Sachs & Co. offered the stock up in October, company officials have seen its stock thrive in the aftermarket, due in no small part to an exclusive supply relationship with General Electric Co.

That performance also boosted the stock price of a February 1998 IPO from solar panel developer Astropower Inc. A competitor to Evergreen, Astropower’s stock is up approximately 82.1% this year.