Rusty Schmit

Can Solar Energy Be Made Competitive?

October / November 05 By: Eric Billingsley Volume 3 Number 5

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Entrepreneur Rusty Schmit recently received a big break. After a few years getting his company Advent Solar, Inc. off the ground, he landed $8 million in Series B funding from a mixture of venture capital and angel investments—€”the largest infusion of capital to date and enough to bring his product to market."What a relief!" says Schmit. "The investment was enough to take the company into business, meaning we can make real products and sell them to customers. This step is one of the hardest."

Advent Solar, incorporated in 2002, is a solar cell and module manufacturer based in Albuquerque. The company is bringing to market a patented photovoltaic (PV) technology that was developed at Sandia National Laboratories. The technology is poised to cut the cost of solar-generated electricity in half, making it competitive with conventional electric generation sources.

So far, the Series B funding, awarded in December 2004, has allowed Schmit to hire a top-notch staff of 33 people and to bring his PV technology into pilot production mode—€”full-sized products are being manufactured in small quantities. The first product is scheduled for delivery to customers in October. For Schmit, the investment is yet another hard-fought victory. Despite having 25 years of experience in the photovoltaic industry, and having run a profitable multi-million dollar solar company in Europe, he admits that raising capital for a startup is one of his biggest challenges.

"When I launched Advent Solar in 2002 I knew absolutely nothing about raising venture capital," says Schmit, adding that one of the most important lessons he's learned is the value of showing a proven track record to investors.

Schmit graduated from Arizona State University in 1980 with a B.S. in mechanical engineering. He worked in the photovoltaic divisions of Motorola from 1980 to 1986 and Texas Instruments from 1989 to 1996. During his tenure at these tech giants, he noticed a peculiar trend with companies attempting to spin out technologies from the labs: most of them failed.

"I saw how startup companies were being run and thought they have no chance of success. They're telling a pretty good story about the technology but have no market center," says Schmit. He also observed that scientists relied almost solely upon internal development dollars to commercialize technology. The process was time-consuming and extremely competitive, often grinding projects to a halt. The cure for funding was both obvious and inspiring to Schmit: "If you have customers, they fund the business. Money starts coming in naturally."

In 1996 Schmit left TI to start his own business. He launched Matrix Solar Technologies with the help of a private investor. The company sought to acquire solar technologies and companies, eventually purchasing Photowatt International, a French manufacturer of wafers, solar cells and PV modules. From 1996 to 2001, with Schmit as CEO, Photowatt's product revenue increased from approximately $8 million annually to $35 million, and market share from 2 percent to 7 percent.
This was a pretty good foundation for launching a new solar company in the U.S. and attracting investment dollars, thought Schmit. In 2002, he and scientist James Gee from Sandia started Advent Solar. They developed a business plan and began looking for investment dollars, but quickly realized that running the business on a shoestring was not a great selling point to venture capitalists.

"I quickly realized that investors were not willing to give money to somebody who was just working out of the home," says Schmit. "Just because you have a great idea does not mean an investor is going to give you $10 million."
After more than a year's worth of rejections from venture capital firms, he eventually met a group of angel investors willing to provide seed capital for Advent.

In 2003, the group invested $700,000 that allowed Schmit to open an office in a technology incubator, hire two additional employees and enter into a development contract with Georgia Institute of Technology. The development contract provided the company with sample prototypes.

In addition to persistence, Schmit says a few factors helped him land the seed round. First was having a strong background (25 years) in the photovoltaic industry. Second was having a solid business plan. And equally important was being upfront with investors about some of the risks involved with the technology—€” and there were many.

The funding played a crucial role in answering questions about whether the technology would work, if in fact it could be produced at a low cost, if the company could attract good employees, if the license was acceptable, among others. Addressing these areas of concern helped establish the company's credibility, says Schmit, a key component for landing future funding.

"Just having sample prototypes went a long way towards reducing the technical risks related to our product," he says. "Investors always want to see the least amount of risk for the least amount of money."

In June 2004, Schmit participated in the 11th Annual Equity Capital Symposium hosted by Technology Ventures Corporation in Albuquerque [publishers of TechComm]. He pitched his company to a room full of investors, going head-to-head with startups in the fields of aerospace design, health solutions and software applications.

While the symposium did not directly result in capital investments in Advent Solar, Schmit says it did help him to refine the business plan—€”another crucial component for approaching investors in the future.

Through his own networking, he eventually put together a group of investors. In December of 2004 three venture firms and several of the original angel investors agreed to provide the $8 million in Series B funding. The firms include EnerTech Capital Partners; New Mexico Co-Investment Partners LP, managed by Fort Washington Capital Partners Group; and @Ventures, an affiliated venture capital group of CMGI, Inc.

"This round was a tough one to put together because we didn't have a lot to show and investor interest in solar at the time was quite low," says Schmit. "Persistence and having a track record helped convince them we could do what we said."

With additional funding comes additional responsibility. Schmit says he feels a high level of accountability to the board of directors in terms of meeting projected goals. However, after having run Photowatt, he's very comfortable in his current position.

"The new round of funding has not increased the pressure," says Schmit, adding, "In fact I feel less stress now than when I was in fundraising mode all of the time."

Schmit is currently seeking a Series C round of funding, which he hopes to land in the near future. The round will be used for the construction of a production facility. With a proven record of product development, pilot production, previous investments from VCs and angels, product delivery slated for October and the market being more open to alternative energy technology, he says investors are much more willing to consider his company than years past. As a result, Schmit says he is currently ahead of his projected fundraising milestones.

Eric Billingsley is a freelance writer based in Albuquerque.