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Buffalo’s Business: Clean energy startups face money quest

Mark Fobare remembers talking with a banker, not long after he and his partner started their own solar energy installation business five years ago.

Forbare’s company, Monolith Solar Associates, was looking for money to help the Albany-based renewable energy business grow.

The banker wasn’t interested, especially since Monolith was a bit player in a newfangled industry.

“He told me he wouldn’t have any trouble financing us if we were selling refrigerators,” said Fobare, Monolith’s president and CEO.

As it turns out, the banker’s conservative instincts were wrong.

Monolith Solar has gone from operating out of a garage to becoming an established player in the state’s solar energy industry, with 70 employees and offices in Albany and Binghamton.

Yet Fobare said it’s still hard for companies like his and others in the renewable energy industry to convince bankers and investment firms that helping to finance renewable energy businesses isn’t akin to tossing fistfuls of hundred dollar bills into the wind.

“What’s happening now is that people just don’t understand the industry” or its risks, he said.

That’s a problem, because renewable energy is “one of the hottest areas” for growth, not only in New York, but across the country, said Marnie LaVigne, the president and CEO of Launch NY, a nonprofit that offers support services to upstate startups and is trying to start its own investment fund to provide seed money.

“We’ve got to be there with the equity capital early on to support these opportunities,” LaVigne said during a forum sponsored by the Upstate Venture Association of New York to call attention to opportunities in the renewable energy field. “We’ve got to figure out how to work together.”

The trouble is that private investment is hard to find across upstate New York for all types of fledgling businesses, not just ones in the renewable energy field. But when the mindset is to favor refrigerators over solar energy arrays, the hurdles are even higher for fledgling renewable energy firms.

To reduce the risks in providing money to early-stage businesses, financing firms, from angel investors to private-equity firms and venture capital companies, often prefer to go into an investment that they think has potential as part of a broader pool, with several other investors. That way, the company gets the money it’s seeking, but each investment firm only has to put up a portion of the total funding, reducing the downside if the business goes belly up.

Even then, the investor with the strongest conviction about a startup has to be able to convince others to put up their own money. And often, that means becoming the lead investor in a round of financing and putting up more money than the other investment partners.

“We really need more people to step up to the plate and say, ‘I’m going to be the lead here,’ and get this done,” said Kevin Christner, the managing director at Richmond Capital Partners, a Buffalo venture capital firm.

But strong investor syndicates have been lacking across upstate in the clean energy sector, said Nicholas Querques, a project manager at the New York State Energy Research and Development Authority.

To fill the void, NYSERDA is thinking about launching its own investment fund that would provide seed money to renewable energy firms, he said.

“There is a lot of confusion in the market about what constitutes clean tech,” Querques said.

It can be a solar panel manufacturer, but it also could be someone who is developing a ride-sharing app for smartphones, he said.

It’s also important that the businesses that are looking for money have something more than an idea.

“We look at technology first and foremost,” said Rami Katz, the chief operating officer at Excell Partners, a Rochester venture capital fund that invests in seed- and early-stage startups. “Is it something that can really make a big difference in the market?”

For those startups, it’s especially important that they be able to show that it has a chance of working. Investment firms want to see test results and research – something the investment world calls the “proof of concept” – that indicates that the idea is on some sort of solid footing.

Of course, that type of testing and research costs money, which can be a hurdle for a startup relying on funding from the owners’ credit cards and the money they can scrape together from friends and family. To help, NYSERDA two years ago created three proof of concept centers to help inventors and scientists turn their high-tech and clean energy ideas into businesses. One of the centers is at High Tech Rochester, a nonprofit venture development group with ties to many of the major colleges and universities in central and Western New York.

“We want to see that proof of concept, and understand that the technology fundamentally works,” Christner said.