Wunder Capital has identified a niche in small and medium solar power installation financing and is looking to financing by connecting them with accredited investors. It has built-in collateral, customer acquisition and is relying on sound regulatory, technology and market fundamentals.
Non-conventional electricity options that can deliver scale are restricted to solar, wind and nuclear. Nuclear is deemed too political to be a worldwide success and wind energy needs positive wind dynamics. The founders believe that wind energy prices can go down by only 10-20%. However, solar energy cost is following a Moore’s like law where price is reduced by 10% every year. This trend is expected to continue for the foreseeable future. The cost of electricity is split between production and distribution. At 10% reduction in cost per year, solar, which does not require distribution, will be cheaper in the next 5-10 years than any electricity production technology that requires distribution, even ones that have not been invented yet or even free ones.
Why is solar viable ?
At present, the economic viability of solar powered electricity is not dependant on sun coverage but on energy prices. The cost of electricity in each state decides whether it is sustainable to finance a project in that particular state. Solar financing becomes feasible at 12 cents per kilowatt/hour. Commercial rates are at an average of 10.5 cents in America, with prices as high as $15.05 in New England and as low as $7.63 in West South Central. On average, the US price of electricity is growing by 2-4% every year. Currently, as-much-as 50% of the market is open for Wunder. For example, Wunder is most active in New England, New Jersey, and New York, but is absent in Colorado (8 cents) or Texas (5 cents).
Market size
According to a report by Solar Energy Industries Association, there are now over 22,700 MW of cumulative solar electric capacity operating in the U.S., to power more than 4.6 million average American homes. With over 135,000 installations in the first half of 2015, nearly 784,000 U.S. homes and businesses have now gone solar and a new solar project is being installed every 2 minutes. Solar has entered the mainstream now and financing options are needed to make it accessible to every kind of consumer. The retail customer is spoiled for choice in solar financing. Homeowners are being offered myriad structures in the form of solar loans, solar equipment lease and long-term purchase agreements with solar companies. But there is very little for small and medium businesses for whom it is a business necessity to get the price of electricity down and who wants to invest in cleantech and promote a greener world.
Company history
Based in Boulder, Colorado, Wunder Capital is engaged in the development and management of solar investment funds. The company has been founded by Bryan Birsic, Sam Beaudin, and Dave Reiss. Bryan is the CEO, with a career spanning Bain & Company, Village Ventures, and SimpleReach. Dave Reiss is the CTO and a cofounder of Knewton (the education startup giant with $157 million in funding). Sam is the head of product as well as chief credit officer and leads Wunder’s product vision, brand building & communication and design efforts. The company had a heavy hitter in the form of Matt Harris (former Managing Partner at Village Ventures); he had been the chairman of board & partnered with Wunder Capital for a short time but later he joined Bain Capital Ventures as an MD of its NY office. Wunder Capital founded in 2013 and has around 10 employees.
The startup observed that there was no availability of solar commercial systems financing below a few million USD. They identified the need for solar installation financing for businesses and felt that SME businesses don’t need, nor can they afford large systems which are the only ones presently financed by existing solutions.
Deal structure
The company is focused on leveraging its technology to create cost-effective bespoke deals, both in terms of financing and structuring, thereby reducing time lags and increasing efficiency substantially. Half of its team is comprised of software engineers who are building proprietary tools to create a more efficient structure. It raised $100k via a convertible note from Right Side Capital Management in July 2014. Further, in Jan 2015 it raised $1.12m via the venture capital arm of Techstars and in March 2016, $3.6m through series A funding from the Fintech collective and Fenway Summer venture. The company approved $25 million of loans in Q4 2015 and the average deal size is for a 175 kW system with the financing of $500,000. It raises risk capital from a crowd finance portal – Crowdcapital.com and has raised more than $1m till the last quarter of 2015.
Amortization of costs
As per government data, businesses in U.S on an average consume electricity accounting for a $250,000 solar power system. Clients of Wunder Capital include data centers, warehouses, cold storage and commercial real estate buildings. According to Bryan, Solar has a payback of 10 years without tax incentives. The government has extended a tax credit scheme till 2022, where the business can take 30% of project cost as a credit against federal income taxes. Solar systems also have an accelerated depreciation of 5 years, putting the payback in a 4-6 year period. Solar has a life of at least 25 years, has no operating costs and the project starts producing positive cash flow for the business by reducing electricity costs from day one of installation. Thus, the business dynamics of solar create a compelling narrative for Wunder Capital.
Financial structure
The Startup has launched two Solar Investment Funds: Wunder Income Fund and Wunder Bridge Fund. The bridge fund invests on day zero, before the start of installation and takes an exit after the completion of the project. Wunder charges 13% of the business and gives its investors an 11% return. The buildout risk being higher it justifies the higher rate and shorter durations of the financing.
The Income fund finances the operations part of the installation with functioning collateral. It is geared to be a safer fund and generates a 6% yield for investors and Wunder charges 7% to the business. The spread has been kept to account for a 2-3% expected default less recovery in the future. The company has two funds to allow investors to fund fundamentally two different types of risk; risk of completing the project versus the risk of a working solar system. The company charges an origination fee from the borrower and a loan servicing fee through the tenure of the loan.
The company can also fund at little or no money down. The 30% tax incentive gives it a built-in buffer and SolarCity (one of the largest solar systems provider in America and led by Elon Musk) published that the recovery on defaults is 81 cents on a dollar. Thus, the company and investors are secure from day one. The company doesn’t have a single default yet and is partnering with solar equipment providers to help them provide businesses with an end to end solution.
The Futures
Wunder capital works with a mission to create sustainable green electricity and reduce the negative impact of climate change by making the solar projects economically viable and feasible. It is the first solar company to be backed by the prestigious TechStars incubator program. It also won the U.S. Department of Energy’s 2014 Sunshot Challenge as well as COSEIA’s 2015 Summit Award. Wunder provides investment opportunities to both individual and institutional accredited investors. It has huge and growing network of installer partners that help in sourcing solar projects. Proprietary software and automation assists in the early completion of projects; making it very effective and delivering competent underwriting process. Wunder Capital is remaining solar for businesses and its USP is not that it is able to provide capital for an underserved niche, but that it is able to create an ecosystem where the solar system supplier, lender, and the business owner can create a Solar Asset with a minimum of hassle and in record time.
Author: George Popescu and Heena Dhir
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