OMG Solyndra’s Dead! How Much is This Going to Cost Whom?

Yup.  Solyndra’s going BK.  Taking with it US government loans to the tune of $10 for every taxpaying household in the country and $500K or so for every job it created for one year.

But seriously, raise your hand if you DIDN’T see this coming.  Like, OK, those with their hand’s raised, you are no longer allowed to comment on this blog.  This deal’s been close to a running joke among the cleantech cynics for a couple of years now.

We wrote about this before.  The theory on the product was that rooftop install issues and low wind resistance were so important that they should be coating CIGS on a circle and encapsulating it in the most weird and costly way possible (or maybe because they liked the cattle-grate aesthetic), and then demanding a premium price for it.  Keep in mind, it was roughly the same amount of CIGS material they would have used if they had done a similiar size flat plate module.

Um, only their PR people and the original inventor must have ever really believed that product design was a good idea to sink a billion and change dollars into (the “and change” part by itself being well larger than the average venture fund OR the average venture backed exit).

Open question, does this go down as the largest venture capital bust in history?  Like a billion in equity? Certainly bigger than Webvan.

List of venture firms that look like they came close to or exceeded the typical contractual or house investment concentration limits in this deal for at least one of their funds, and/or had to cross-over investments in later funds to keep up.

  • Rockport
  • CMEA
  • Virgin Green Fund
  • Masdar
  • Redpoint
  • USVP

List of hedge funds/family offices that provided most of the cash to cram down those VCs in the last few of rounds including anchoring the equity for the DOE Loan Guarantee and replacing the the $300 mm IPO with $250 mm private equity deal along the way.

  • Artis
  • Argonaut (George Kaiser family)
  • Madrone (Walton family)

List of those government entities dumb enough to fund a half a billion dollar senior secured loan that went up in smoke within what, a year?  Going poof that fast is usually the lender’s mistake, not the borrower’s.

  • DOE – AKA the guys who created jobs at the price of like $500K per job created – for like 12 months?

My guess as to actual recoveries for the DOE:

It’s specialty equipment in a commodity business and they let the entire manufacturing staff go.  Nobody’s restarting this thing.

  • So you’re looking at tops very low 7 figures for the patents, maybe, I haven’t done a review to see whether there is anything of interest outside of their own product defense.
  • The c. $216 mm (as of Jan 2010)  in equipment gets sold off for tops 5-10 cents on the dollar for other uses, parts, or scrap.  And I think I recall they owned one of their chunks of land and building right? The S-1 has land in it as $32 mm, plus building construction in process.
  • And a few million in inventory and A/R gets recovered at 5-10 cents and 20-30 cents on the dollar.
  • Then, do they have a saleable customer pipeline or development pipeline of contracts that could be sold, or do all those simply evaporate?  Probably the latter, but some possibility here.
  • MAYBE the government gets back 10-20 cents on the dollar tops, assuming that building and land sell off well.  Everyone else?  Nada.  🙁

Part of me wants to say I told you so, and part of me is literally cringing from the fallout this could  have on the cleantech investment sector and a lot of smart, dedicated people I know who were involved in this company.  My one nagging fear is that this is just the first of many other multi-hundred of million dollar cleantech venture deals are in the pipeline to go straight to zero.

 

9 replies
  1. Eric Wesoff
    Eric Wesoff says:

    Hey Neal,

    "Um, only their PR people and the original inventor must have ever really believed that product design was a good idea…"

    I know one of the original inventors, long gone from the firm, and not even he believed that this product had commercial potential.

    Nice article.

    Eric Wesoff

  2. Robert Rapier
    Robert Rapier says:

    "part of me is literally cringing from the fallout this could have on the cleantech investment sector"

    Neal, this is precisely why I work hard to expose the hypesters. When they go down, the whole sector takes a credibility hit.

    Robert Rapier

  3. Jay
    Jay says:

    their assets wont sell off well. the fremont manufacturing facility is something like 600k square feet and cost around 250M to build.

    The building is so specialized towards their manufacturing process that there will be few buyers that will pay for it.

    The best I can see is that they sell all the tools for scrap, and then they turn the giant place into a warehouse. but if the next owner turns it into a warehouse, he will pay pennies on the dollar for it, because that is all it is worth.

    the project was a giant waste. a scam on the taxpayers. I understand Obama's vision for a "green" future but he was hoodwinked into buying into this company. Its going to be a republican talking point in the 2012 election, and rightfully so.

  4. jzj
    jzj says:

    I request leave to violate your rule and write as one who did not see Solyndra's BK coming until recently.

    I thought Solyndra had a clever niche in that it was easy to toss the modules up on large flat commercial roofs, thereby saving on installation labor and racking costs, saving on engineering for wind load, and saving on possibly having to reinforce the roof. It seems that there are many large commercial building applications that would benefit, and that the Solyndra product supply would be readily bought-up for these applications if it penciled out. What was the value of these identified savings — perhaps $.50/watt or so? Good: then all Solyndra needed to do was to cost no more than about $.40/watt higher than equivalent power modules and the business model would work out.

    And did Solyndra's modules prove to be manufacturable for a $.40/watt premium? No; hence the BK. But the question is, who knew it would cost more than a $.40/watt premium and when did they know it? I do not know the predictions regarding Solyndra's manufacturing costs going into the venture, but I am going to bet that this was a matter of two charts going in opposite directions: the manufacturing at some point proved to be more expensive than predicted, but perhaps more importantly Solyndra, like many people, did not foresee the last couple of years of China, Inc.'s hell-for-leather attitude in so deeply subsidizing the price of Chinese module manufacture and thereby driving down the available commodity cost.

    (Now, this analysis may suffice as an excuse for the original investors: whether is can cover DOE's loan made only a year or so ago…)

    So, honestly, aside from a few people — and many of whom probably only came to the conclusion within the last couple of years as they saw the price of modules come rocketing down — how many with skin in the game can say that they saw this coming all the way back when Solyndra first got its start?

  5. Gina Durante
    Gina Durante says:

    So true!! It is sad that so much money went into this venture instead of other less flashy but more promising clean economy enterprises. It’s yet another strong argument to clean tech investors (esp. VCs and investments funds of high net worth individuals) to talk to people who actually understand all of the drivers for clean tech–technology, the regulatory / political drivers, energy procurement, cost drivers–before plunking down that kind of money. Don’t assume that other industry experience (especially Internet-related) is applicable to clean tech investments.

Trackbacks & Pingbacks

  1. […] hit to the taxpayer will probably end up being less than the face value of $535 million, although my fellow CleanTech Blog colleague Neal Dikeman is not too optimistic.  Time will […]

  2. […] the refinancing, or less than a 22 percent return to the government, says Bloomberg. Also read Neal Dikeman’s analysis of how much investors and the government could get out of a Solyndra liquidation (warning: it […]

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