Belmont Club

Counting the Cost -- At Last

Total losses for Solyndra — the company which President Obama touted as the future of Green Jobs — may exceed a billion dollars. GigaOm says the debacle could be the biggest VC loss in history.  “When hip cell phone startup Amp’d Mobile went bankrupt back in 2007, the company lost its venture capital investors about $360 million. When solar maker Solyndra files for bankruptcy (they’re aiming for next week) it could lose close to three times that amount, or a big chunk of its VC backers $1.1 billion (we’ll see how much any assets go for). That could make it the largest equity loss for venture capitalists in history.”

The catastrophe is so huge that it may wreck the entire solar energy startup process. The Wall Street Journal describes the deadly “Solyndra Effect”:

The “Solyndra Effect,” one clean-tech investor said, now refers to the chill sent down the spines of potential limited partners of venture capital funds by the massive writedowns experienced by investors in the solar company.

Solyndra’s case is especially tragic, given that the company raised more than $1 billion, making it one of the most well-funded start-ups ever, and surely the biggest bust for the venture capital industry in terms of equity raised.

Despite warning signs, Solyndra’s investors continued to wager more money as they began losing their grip on the company…. the Department of Energy, which supplied the company with a $535 million loan in 2009, pressured the venture firms to reinvest to demonstrate investor support. Several major equity investors had to convert their preferred equity into common stock as part of the $75 million secured debt round.

Now, as the company prepares to enter Chapter 11 or sells its assets, the government will want its money back. According to a DOE spokesman, $527 million of the $535 million loan has been drawn down. It’s not clear which secured debt holders will get paid back first–the case will go to a bankruptcy court to sort it out–but the venture capitalists holding equity may be out of luck.

Out of luck. S**t out of luck. There’s that phrase again. The absence of luck — “a run of bad luck” — that has been bedeviling the Obama administration for some time has struck once more. Part of the problem was the temptation to keep reinforcing failure. Once the Pied Piper had led his followers down the path to doom in such merry jangling it was a bold man who could turn back.

GigaOm notes that it was difficult for investors, once they had been sucked into a commitment to pull back from the emerging debacle. Like some kind of science-fiction vortex, Solyndra kept pulling in more cash only to destroy it because it became impossible to admit failure.

Perhaps you’re wondering how investors could keep funding a company that couldn’t draw enough interest from investors to fulfill its IPO plans back in the Summer of 2010. Beyond the somewhat unexpected change in the economics of the solar industry (panel prices dropped dramatically while Solyndra grew), once investors put money into a company, it can be a difficult decision of when to pull out and when to put in more money. … As recently as March of this year, VentureWire reports that at least three of Solyndra’s backers — Madrone Capital, RockPort Capital and the George Kaiser Family Foundation — put more money into Solyndra in a recapitalization round. When you’re stuck in a hole, sometimes its hard to know if digging is going to help get you out, or send you deeper.

The WSJ adds, “like a gambler in the hole, the venture firms’ bets grew larger and larger, making it more difficult to back out, even as competition among solar panel manufacturers, especially in China, got tougher.” Greenbiz.Com notes that the Solyndra catastrophe has thrown a wrench into the Green investment works beyond the immediate vicinity of the sinking. It “is a blow to its government and green supporters — and predictably has red state critics of the recovery program calling for blood.” But the most lasting effect of the firms’ collapse, and its the bloodbath among its investors, may be the shattering of the taboo on criticizing “environmental” initiatives which heretofore had been protected by the odor of sanctity.

Now if people stand to lose fortunes they are more ready to admit it.  Even in London the power of arithmetic is reasserting itself  over belief.

organizers of the 2012 Olympics now say they won’t pursue a broad plan to offset greenhouse gas emissions from the games and travel associated with the competition. The abrupt switch, slammed by a Green Party member of the London Assembly, could save $4.4 million in costs, according to Bloomberg. The news came amid reports of mounting costs for the event.

Part of the problem the London Olympic Organizers faced is that they would have been forced to spend large sums of money overseas to comply with carbon regulations at a time when Britain is out of money and out of jobs. Bloomberg reports:

“Officially, if you want to go down certified carbon- offsetting all projects have to be overseas, so if we plant a lot of trees in Essex that just doesn’t count,” said Stubbs, referring to the English county. “Because the Games are in the U.K., we wanted to maximize the Games locally. Doing formal offsetting would be diverting things.”

It was an absurdity; a mere libation to the gods of political correctness that would have poured wine down the throats of Chinese industry and impoverished the already hurting British public. The participants in these carbon offset schemes must have known the truth all along but perhaps many went along in order to appease political interest groups. Now that the Solyndra catastrophe bids fair to sink billions of dollars and perhaps pull down whole sections of the solar-energy industry the full cost of ‘going along to get along’ has been revealed. Questions of cost, product demand and design have re-entered the wonderland of Green Jobs and shaken its inhabitants awake. That these factors should have been absent to start with is a testament to the stupefying power of ideology over common sense.

Perhaps chastened by recent events, the President has promised that his historic exposition on how to save America’s jobs “will be completed before the game between the Green Bay Packers and New Orleans Saints next Thursday at Lambeau Field.” However there remains the question of how far it may interfere with the pre-game hoopla.

White House communications director Dan Pfeiffer told The Associated Press the speech would be completed in time. Kickoff is scheduled for 7:30 p.m.

While Obama’s speech averts a conflict with the kickoff, left unresolved is how NBC, which is carrying the game, will handle the pregame festivities. The NFL and NBC are planning a kickoff concert and other pregame activities to mark the opening of the NFL season.

Steve Wexler, vice president of radio and TV operations for Journal Broadcast Group, said Thursday that WTMJ-TV (Channel 4) had said earlier that he had asked that both Obama’s speech and the football game be made available to NBC affiliates across the country. That way, each station can make a decision on which event to broadcast.

It’s a sad comedown for an agenda which was to have healed the earth and caused the seas to fall. Now the best it can hope for is not to run counter to the night’s entertainment.

http://www.youtube.com/watch?v=pj-1b1Yvep8

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