MBA entrepreneurs have their day in the sun

Stanford MBAs exploit a gap in the clean-energy market

Seeing the light: Lynn Jurich (left) and Ed Fenster

Ed Fenster and Lynn Jurich are saving the environment one rooftop at a time.

Sunrun, their company, provides solar power to 35,000 homes in about a dozen US states, including California, New Jersey and Pennsylvania.

To date the energy generated by the company’s rooftop solar systems has offset the annual greenhouse gas emissions of 43,091 cars.

“It is very clear that this generation’s biggest problem is energy,” says Ms Jurich, 33. “The waste is costing us too much from an environmental and financial standpoint.”

At its core the business is very simple: Sunrun sells a solar power service to homeowners. To do that, Sunrun raises tens of millions of dollars in project finance from investors every quarter to purchase, install and maintain rooftop solar systems. In return these investors receive the tax credits the systems are eligible for, in addition to a share of the homeowners’ monthly payments.

One of the wins of the financial crisis is that it made it very hard for people to follow us into the market

Ed Fenster

Homeowners, meanwhile, sign a 20-year contract for the service. The average Sunrun customer is expected to save $20,179 on electricity bills over the life of the agreement, according to the company.

“If you look at your electric bill, the biggest cost is bringing the energy to your home,” says Mr Fenster, 36. “We take that out of the equation.”

Mr Fenster and Ms Jurich met as MBA students at Stanford Graduate School of Business. They are from opposite coasts but both have a background in private equity and an interest in entrepreneurship.

They considered various ideas for clean energy companies or investment opportunities. “There was a huge wave of investment in clean energy hardware like fuel cells and panels, but nobody was thinking about how you get this stuff deployed, and that, fundamentally, is a finance problem,” says Ms Jurich.

“We identified a gap in the market and aligned it with our skill set.”

They founded Sunrun in the second semester of their final year of business school. The pair loaded up on courses about entrepreneurship and leadership and Ms Jurich admits that during those frenetic months, neither of them was a particularly good student. They often missed classes to meet contacts and pitch to potential investors. Many of these meetings were the result of their Stanford network.

Jim Ellis, lecturer at GSB in the Center for Entrepreneurial Studies, who taught Mr Fenster and Ms Jurich, remembers them as “two of the smartest students I’ve ever had in 10 years [of teaching].

“One of the qualities that I look for in entrepreneurs – and that these two exhibited – is a real willingness to talk to people. They are highly energetic and highly engaged.”

As business partners, the two complement one another: Where Mr Fenster is detail-oriented and analytical – it is not uncommon for him to stay up until 3am hammering out a financial structure – Ms Jurich prefers to concentrate on big-picture strategy. She is most skilled at evangelising the business model.

“We joke that Lynn is the one who makes us the money and I am the one who doesn’t lose investors’ money,” says Mr Fenster. (A third founder is no longer with the company.)

After graduating from Stanford in 2007, they cobbled together $3m to start the company. They dipped into their savings and several Stanford classmates invested, as did several of their former colleagues. The following summer, they raised their first round of venture funding worth $9m.

To be able to install the solar equipment – solar panels start at about $30,000 per single-family home – the partners needed finance capital. They investigated possible deals with banks and even an energy company. However, the economy then began to unravel. Mortgage defaults rose, Lehman Brothers declared bankruptcy and the stock market tanked.

“We’d make a call [to a bank] only to learn that an entire team had been fired,” recalls Ms Jurich.

In November 2008, they received project financing from US Bancorp, a bank that had no subprime exposure, to support the purchase of $105m in solar equipment. “That was a make or break moment for us,” says Ms Jurich. “If we had not been able to do that, it would have been hard to see us being able to move forward.”

Sunrun now has enough capital to support the purchase of more than $1.5bn in solar equipment. Each day the company, which is based in San Francisco and has 200 employees, installs $2m worth of equipment. Over the past six years, Sunrun has raised $145m in venture capital from Accel Partners, Sequoia Capital, Foundation Capital and Madrone Capital Partners.

“One of the wins of the financial crisis is that it made it very hard for people to follow us into the market,” says Mr Fenster. “It gave us a four-year lead.”

Sunrun finds customers through big-box chains such as Home Depot and Costco; it has also partnered with local solar installation companies. However, not every home is a candidate for solar power. Some do not get enough sunlight; in certain cases, homeowners do not use enough electricity to make the switch worthwhile.

“We need to save people money,” says Ms Jurich. “It needs a compelling opportunity. And in places like the northeast, California, Hawaii – where energy is very expensive – it is.”

The market is growing at a rapid pace. According to GTM Research, the Boston-based company that specialises in clean-energy technology, the number of residential and commercial solar panel installations has more than doubled over the past two years.

But the sector faces challenges, namely costly state regulations and the expense of bringing in new customers. Sunrun currently operates in 10 states.

It’s a business that’s “enormously capital intensive”, notes Prof Ellis.

“The risk associated with this business is that you’re on the hook for a large capital investment upfront which pays off over the long term,” he says. “The government subsidies and economic incentives [related to solar energy] might not always be there.”

But he is sanguine about Sunrun. “The upside is that they have a high-quality management team and ability to attract sophisticated capital investors. They put some really good horsepower on these important issues.”

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