The state of the German Retail Solar industry: Part 2 - the current financial landscape in #solar for #startup's and #growth companies. 🌞

🔍 Downrounds on the Horizon

Global #vc funding has been down 42% so far in 2023 - however, #cleantech sector funding has slowed down less than other industries. At the same time, on the back of weak demand, many solar scale-ups struggle to reach the planned break-even and are quickly using up any reserves. In such a phase, securing additional funds becomes a daunting task, especially as valuations, sky-high still last year, have come down significantly. In the current environment, companies are likely facing significant down rounds (first example #Otovo). Pulling through requires mental adaptation, acceptance and a mindset different from the one most players have been on. It is time to expand the narrative beyond the pure growth gospel, add more strategic substance and include a convincing plan to reach profitability!

💸 Growth rounds run dry

Scale-ups on their way to break-even still need sizeable funding and often funding rounds are pegged to milestones in company development. As solar demand slows, achieving milestones has become harder and fund release is not guaranteed. Investors need to rely more on conviction rather than positive growth metrics. Many investors have “picked their horses” in 2021/2022, with seemingly sizeable rounds for #EnPal, #1komma5, #zolar at high valuations (but, watch out: corporate funding is not the same as asset finance). Investors hope to avoid being asked to drive a down round which impacts portfolio value. New scale funding is scarce.

📉 Demand slowdown impact

Falling prices reduce turnover and margins, while costs seem to only know one direction during scaling-up (despite falling hardware costs). Higher customer acquisition cost do their bit. Year-end pressures are more pronounced this year: ability to turn inventory into cash becomes life saving and inventory bears the risk of depreciation with falling hardware prices. All of a sudden, inventory turn, operational efficiency and costs structure are key, investments delayed. Be wary: key people may jump ship as stories change and share options become worthless. A new situation for many founders and leaders.

🧐 #investor patience and bright spot in #seedfunding

These days, resilience of investors is being tested. It helps in those challenging times to know where difficult decisions may be needed: understanding who loses most if all goes South - the way out of a potential crisis likely leads through that door!

On the positive side: Selected early stage start-ups still see good venture investment traction. Seems like investors are getting ready to pick who will emerge from the cold in 1-2 years.

Let's discuss! What are your thoughts on the current financial challenges in the German retail solar industry?

See also our prior posts for further perspectives 😊

Authors: (Christian Langen and Tobias Schütt)