the Blackstone Group, and Jurich had worked on technology and financial services investments for Summit Partners. The two friends were looking to apply their finance skills in a new area. That was when a high-school friend of Fenster’s came home from the war in Afghanistan and convinced Fenster he should do something to reduce U.S. dependence on foreign oil.
Fenster approached Jurich for help, and the two noticed that companies like Sun Edison were beginning to make money selling solar-generated electricity. “We very quickly discovered that everybody was trying to solve the problem of building big commercial solar projects, but nobody was focusing on residential,” says Jurich. “But retail electricity for residences is more expensive than other segment, so that is where you are going to get to grid parity [electricity that costs no more than utility power] first. Also, it’s much harder to scale up. So we felt it would be a better, more defensible business over time.”
But in choosing a business that would be defensible against competitors, Jurich and Fenster had carved out a huge obstacle for themselves. Installing solar panels and the associated electronics can cost $40,000 per home. SunRun’s plan was to cover part of that cost by requiring homeowners to sign 20-year contracts to buy the electricity from the panels—so-called power purchase agreements. But that revenue would come in slowly over two decades.
As the builder and owner of the systems, SunRun would also be entitled to any renewable-energy subsidies provided by the homeowners’ local municipalities. That still wouldn’t be nearly enough.
So SunRun raised its first venture round—$15 million from Foundation Capital—in June 2008, and started paying for the first wave of customer installations from its own cash. “We were funding all of these assets from equity, which you normally wouldn’t do—it’s very expensive,” says Jurich. “You need to get project financing into place.” In the case of builders like SunRun, project financing usually means tax equity.
When developers like SunRun install solar panels in states like California, homeowners sign over the associated tax credits. But developers don’t usually have enough taxable profits themselves to use the credits, so they raise capital by selling the credits to banks, along with a share in future revenues from electricity sales.
Before the Great Recession, this was one of the major ways renewable energy projects got funded. But it was now the fall of 2008. At a time when the financial world was crumbling and consumer credit seemed increasingly toxic, SunRun was going to banks and asking them to hand over tens of millions of dollars to finance a consumer-facing business. It also had to make financiers believe that the company would still be around in two years, let alone the 20 years specified in the power purchase agreements.
“It was a huge effort to convince them and to eliminate the risk in these capital projects so that we could get capital in an affordable way,” says Jurich. But eventually, the startup signed up its first tax equity investor, U.S. Bancorp.
“These guys, to their credit, worked tirelessly on this through the fall of 2008, when the world was falling apart,” says Vassallo. “The Dow would lose 10 percent on the week, and to be out on the market as a very young company that had just been financed, run by a
