Getting Bullish on Cleantech
Lately, I’ve been feeling very bullish on cleantech, from my perspective anyway. I’ve had a number of conversations with peers in the industry, property owners, and others to see what’s happening and if anyone is actually making any money. Don’t get my wrong, I still think there are opportunities. The question is: are there opportunities from where I’m coming from? At this time?. Or, do I need to wait?
Here is my perspective and where I’m coming from:
- 26 years old no kids or major responsibilities
- No debt and some cash (~20k) ready to invest
- Well paying consulting work that is 100% remote.
- Amazing knowledge and existing relationships of solar PV, thermal, geothermal, air source heat pumps. I feel comfortable marketing, selling, designing or installing any of these technologies. Yes, I know, I’m a weird animal.
Back to the point, here’s why I’m bullish on cleantech.
It doesn’t appear that many people are making any money! All of the major solar PV manufactures are loosing money hand over first, and I’d say it’s 50/50 for pure play EPCs making money in the solar PV space. The volume for solar thermal is low so most of the manufactures and EPCs are making money because their margins are so high, to compensate for low and unsteady volumen.
I just got back from InterSolar and these days, solar PV is the darling of the industry doesn’t seem to be in a good place. Most are loosing money, and there’s only a few people that I’m certain are making money.
- Small niche B2B companies selling to EPC contractors. They have high EBITDA but relatively low volumes. These business include the best racking manufacturers, site visit tools and other software companies. While these companies tend to be very profitable, they’re also starving for cash because they’re plowing it all back into growth, which is not a bad thing because they tend to owned privately with no outside investment.
- Great salespeople are killing it. I residential or commercial sales person in the top 25% of their companies is making a nice income.
- Electricians making prevailing wage. 40 hours per week @ $75 an hour in the Boston area isn’t too bad.
- General contractors where solar makes up less then 30% (or so) of their business, so if they don’t get unbid because they don’t need to go lower just to win the job, which could cause them to lose money.
- Tax equity investors investing in MW projects or creating large funds for commercial or residential projects. Private equity investing in MW solar projects are getting un-levered IRRs of 9%, which are almost risk free because the PPA is signed, they have no construction risk and all the other risk is dumped on other parties. The tax equity investors investing in residential projects are making ~14% in 7 years, and most of that cash is made through ITC, cash rebates and MACRS so they’re not very exposed to the actual performance of the projects.
- Property owners that paid cash for their systems and can leverage all the tax benefits are also making good, 15% IRRs over the 20 year expected life of the system.
- Investors that are providing bridge financing to small/medium solar PV EPCs against cash utilities are making a killing. At least 30% YOY returns without much risk. Volumes are also low, $20k – $50k might be a typical deal, but the transactions costs are minimal as it’s basically financing an accounts receivable which is a well known business transaction.
With that being said, here’s the type of opportunity I’m looking for
- Not technology risk, sales oriented. I want to just assemble existing technology.
- Able to test the market relatively easily.
- I don’t care about “scale”, however you’re defining that.
- Niche opportunities that have the ability to, maybe, become larger opportunities
- Quick sales cycles and easy to find the decision maker. Critical for momentum when making the first sales and going from 0mph to 1mph
- No outside investment need, it’s too much of a pain to deal with investors when you’re getting going.
- My number goal is simply to not being bored
- The second goal is building really cool sh%t.
- I love the feeling when you put something in front of someone and ask them to buy it. I don’t want to be a consultant or investor, because they lack this rush. I need to be on the front lines.
- Currently, consulting is ok, however, I’d like to build something myself. I want to get excited enough about a product that I can put all my chips into. I recently spent a lot of time thinking why this was so important and it has nothing to do with ownership, but of honing a skill set and pride. It would be like a apprentice carpenter then never became a master carpenter.
Potential areas of opportunity:
- Cleanweb. Whatever this buzz word means. You could also look at it as tech that’s focusing on energy issues, or the overlap of IT and physical products to increase their performance. The only type of these opportunities I would look at are things that can tested cheaply, I’m not interested in dealing with the VC stuff. Running HeatSpring and getting good at customer acquisition, internet marketing, managing sales funnels I’m confident that I’d be able to work with tech companies focusing on cleantech. Also, I have intimiate knowledge of EPC contractor, distributors and manufacturers and strong technical knowledge of many technologies. The issue with ‘cleanweb’ seems to be 1) cutting through the bs of buzzword world and 2) figuring out how to charge money for a service
- Customer acquisition is a huge issue. There a lot of lead gen companies, BUT leads are not valuable. SIGNED CONTRACTS ARE VALUEABLE. 1Bog did this well, but not well enough and they were just sold to an Ontario company. To acquire a solar customer for a typicall EPC costs between $3k and $6k, so the question is, how much is a signed contract worth? $3k?
- Import. Some of the geothermal heat pump manufactures are charging an arm and leg for their equipment. I could get it in China for much cheaper.
- Real Estate: Provide equity and cash flow. You can buy a 3 unit apartment building relatively easily, lump the utilities into the rent and upgrade the energy system = vastly increase net operating income. Also, the tax benefits of owning property almost equal the downpayment for the building within the first 7 years.
Principles that I’m keeping in the back of my mind
- Continue to save massive amount of cash, and as much as you can. Forgoing weekends drinking and going on trips is worth it. Then, when you find an opportunity, you’ll have an extra $10k or $20k to plow into the idea and you don’t need to convince anyone for cash.
- Put yourself where it’s slippery. Continue to keep your ear to the ground to learn what’s going on and create real relationships with awesome people and help them with whatever they’re working on. Why? When you need to really get something done, you need to be able to make personal phone calls to make sh%t happen ASAP. Never network, don’t throw business cards around and try to seem super important.
Flaws in my thinking
- Right now, I can tell that I’m trying to make sure that plan 1 works even though I know that most business end up on plan 5 before they hit their stride. Here’s the rub, they can’t get to plan 5, before going through the first 4 paths.
I’m curious, where are you confident investing your money, time and resources within cleantech?
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