Renewable Funding Reemerges Against Odds With $20M

April 24, 2014

After a near-death experience, Renewable Funding Inc., a company that finances renewable energy and energy-efficiency projects around the country, came around to raise $20 million in fresh funding amid a revitalization of its business.

It would be fair to call Renewable Funding “a survivor,” said Cisco DeVries, the company’s co-founder and chief executive.

The Oakland, Calif.-based company will announce Wednesday that it has closed a $20 million Series B round of funding led by new investor Prelude Ventures, joined by new investors Angeleno Group and Apollo Investment Corp. Returning backer NGEN Partners also participated, along with Claremont Creek Ventures.

Today the company provides loans to homeowners and businesses to install renewable energy or make energy-efficiency improvements. When homeowners repay the loans, part of the interest goes to Renewable Funding.

The company gets the funding for the loans from others, such as Citigroup in the case of a program that Renewable Funding runs in the state of Pennsylvania. The company also securitizes the loans it holds.

“We’ve deployed tens of millions of dollars and the number is growing dramatically now,” Mr. DeVries said. One of the reasons, Mr. DeVries said, is that the market is making energy efficiency, as well as solar and other renewable energy, more of a service that is paid for in the same way as utility-based grid power, rather than a project that requires a large upfront cost.

Renewable Funding expects to deploy $100 million in loans this year, Mr. DeVries said.

In the residential solar market, several financing and project development companies have been growing quickly by providing financing, including companies like Sunrun Inc . and SolarCity Inc . In energy efficiency, several contractors began offering monthly payment plans for homeowners, with SCIenergy Inc . being one.

Renewable Funding is the provider of financing alone and works with other contractors to actually make the home improvements. But the story of Renewable Funding wasn’t always about growth, although it began that way.
Prior to starting his company, Mr. DeVries served in a post in the city government of Berkeley, Calif., where he came up with an idea of paying for solar and other projects such as the installation of efficient air conditioning not upfront, but rather via increased property taxes.

This type of financing, which was called PACE, or Property Assessed Clean Energy Program, gained steam and was quickly adopted by towns, with 30 states signing laws that enabled PACE.

Renewable Funding, which helped municipalities implement PACE, raised $12.2 million in a Series A round in 2009 from Draper Fisher Jurvetson , New Cycle Capital, Wilson Sonsini Goodrich & Rosati and NGEN.

But in 2010, Fannie Mae and Freddie Mac said homeowners with PACE violated their mortgage contracts and could default, as Mr. DeVries described in a recent blog post on the subject. As a result PACE was put on hold around the country.

“That was no fun,” Mr. DeVries said. “Every startup has its tales of woe that makes the book interesting when you eventually write it,” he said.

Renewable Funding, whose main business was implementing PACE funding for residential customers, had to cope.

“We had to retool, rethink our approach,” Mr. DeVries said. The company deployed some of its efforts and team into developing new financing mechanisms, as well as into moving to provide financing for commercial customers, not just residential ones.

Even residential PACE programs are back on track, at least in some parts of the country. California created a PACE reserve that will help protect Fannie Mae and Freddie Mac and other mortgage holders, according to Renewable Funding, from any losses that result from PACE liens. As a result, PACE funding should be made available again. Renewable Funding will administer the program.

Along the way, Renewable Funding has lost the support of some of its venture investors. “Five years is a long time in the venture world,” Mr. DeVries said. Some of its original investors are no longer investing in this sector. They didn’t come back for this round, but remain shareholders, Mr. DeVries said.

Asked about valuation, Mr. DeVries said: “We have definitely had our share of valuation ups and downs…I can say that our latest round was a step up from our original Series A valuation in 2009.”