From Semiconductors to Green Power: Borrego CEO Mike Hall (Part 4)

SM: What was the process of finding your mentors?

MH: There is a group in San Diego called the Chairman’s Roundtable. Semi-retired business leaders volunteer their time. They only work with companies with over $10 million in revenue and want to grow. You apply and get a board which essentially meets monthly for about six months, and they help you develop a strategic plan.

We were not as disciplined as we should have been in carrying out the strategic plan. On the operations side, and the advice regarding how to scale operations, the advice we received was invaluable. They were great mentors.

SM: When you did end up raising venture capital, who did you raise it from and what was the decision process?

MH: The process was incredibly painful because of timing. We had been getting calls from the middle of 2007 through Q3 of 2008. We took calls from both financial investors and strategic investors. We were fielding a few of those calls a week. We ignored them, to our detriment. Finally in the beginning of 2008 we decided to talk to some of them to see if we could raise some money.

The challenge was we had never done it before. People can give you crazy indications of interest but it is not useful unless you do it in an organized process so that you can arrive at a decision at around the same time. Being able to evaluate multiple potential partners apples to apples, and making them offer apples to apples by mandating what the structure of the deal is going to be, is critical.

We lost control of the process for four to five months. We were getting very attractive indications of interest. Akeen, a public company, had a market cap of $300 million at the time. Their financial results were not as strong as ours. As a result, we were getting incredible term sheets. We were not good at evaluating who was real and who wasn’t. There were people who would make indications of interest that they could not actually fund. We ended up hiring an investment banker after we had negotiated a term sheet and spent all the legal fees only to have the potential investors tell us they could not actually fund it. We then signed a terms sheet with a private equity firm. We did all due diligence and it fell through the day before.

SM: Was all of this going on during the financial crisis?

MH: The market had started to go down. In solar, the tax credit was continuing to come up for renewable. Every time that happened we got calls from the potential investors asking for models in the event that the bill would not pass. We would build the model and they would tell us that they did not believe our model was correct and that actual results would be worse.

In the end, they lost faith in us and thought we would have huge operating losses if the tax credits disappeared. The day before signing documents they changed the deal so materially that we could not do it. We then went after another deal, and Lehman went under a couple of days before that deal was supposed to close. We definitely had a few rounds of bad timing.

SM: That was in September, right?

MH: Correct. We then went and signed another term sheet and completed a deal in December.

SM: At least you managed to do a deal in the middle of the financial meltdown.

MH: It was incredibly painful. It was great that we did it.

SM: Given what is going on in industry, has the business been impacted?

MH: It definitely has. It is such a weird time in solar right now. Medium- and long-term outlook has never been better because of equipment prices and longer-term support from the federal government. The short term, however, is rough. It is very difficult to close deals. We are financed by a tax credit, and you cannot sell a tax credit in an environment in which everyone’s tax appetite is quickly diminishing because they are losing money. Fanny and Freddie were 45% of that market and they just went away. The demand for tax credits is gone.

The Fed has recognized that and there will now be cash options, so you don’t have to go anywhere else, but that is a few months away. One of the big challenges we have always had in solar is the question of what is coming next and how that is going to be better for the customer versus what is currently available. Why invest now? I should wait and see. That feeling is prevalent right now.

This segment is part 4 in the series : From Semiconductors to Green Power: Borrego CEO Mike Hall
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