The VC bidding wars, and how SolFocus more than doubled its money

SolFocus is a start-up in Palo Alto developing technology that uses mirrors to concentrate the sun on solar cells, effectively squeezing more energy out of less silicon. Below is an account of the bidding war at SolFocus. It is part of a larger story about clean-tech investing in the Mercury News this morning:

San Francisco firm Nth Power has been active in clean technology investments for several years, and was among the many firms jockeying to invest in the company, valuing it in the single-digit or low teens of millions of dollars. Other firms were doing the same.

Scott Sandell

But then Menlo Park’s New Enterprise Associates swooped in last month, led by partner Scott Sandell. Sandell, one of the leaders of the big, generalist venture firm, offered to value the company at $70 million, or about seven times what some other firms had wanted to pay — and that after only a brief review of the deal. NEA did not respond to several requests for comment.

One existing investor was venture firm NGEN, which had given seed money a few months earlier. It got squeezed, because the money it had invested in that initial was converted to the value of last month’s round, meaning that NGEN too was paying a high price to invest in SolFocus, even though it had put in months of sweat equity. “It went from being a great deal for NGEN to a good deal for NGEN,” said Rob Koch, who is southern California-based NGEN’s point person here in Silicon Valley. “Would we rather be on the sidelines?” he asks, rhetorically. “No. Without a doubt, we’d rather be in this deal at a higher valuation.”

The end result is that SolFocus, which had set out to raise only $12.5 million, finished with $32 million in the bank. That sounds good, right? Well, looked at another way, SolFocus is going to have to make a whole lot more money now to produce the returns demanded by eager investors.

It is the latest aggressive move by NEA, and we expect to see more.