Wow, what a Fall it is turning out to be. Has there ever been such an influx of ever almighty hurricanes ripping through the Southeast like this year? Is this just a sign of things to come as a result of our carbon footprint aka “global warming?”
Ask any competent human being and likely the answer you will get is absolutely. So, what are we going to do about it? One huge opportunity we have is to adopt solar as one of our main forms of energy. But like everything, investing in solar energy means major capital investment and thus a need for ample lending resources.
That’s where Bryan Birsic and his team at Wunder come into play. Together he and his team are looking to provide better, more efficient funding to the solar markets. On the flip side, the Wunder team is also looking to provide investors a chance to invest in a high-yielding and environmentally conscious alternative investment.
All in all, Wunder is about doing well and doing good. Check out our discussion below to learn more, and thank you Bryan for investing in truly Simple.Innovative.Change
CL: Bryan, you are a seasoned startup veteran from your years at Village Ventures to helping to found companies in the education and marketing space. What is it that draws you to starting up, and why build Wunder now?
BB: Well I joined Bain & Company for two years, and then I spent four years at Village Ventures investing in tech companies in the Fintech space including a Series A in OnDeck Capital, which ended up being a big winner in the portfolio.
That was where I really got my education in commercial marketplace lending. And since 2013, I have been working with my Co-Founders to bring aspects of marketplace lending to solar projects.
The decision to found Wunder Capital started at a fairly existential level for me. I am fascinated by organizational design, and most of the extraordinarily high impact groups that have changed the world over the last 50 years are groups of 50 to 100 people that work together as dynamic and inspired teams in a large market seeing foundational change. We are living during a time in history where these teams seem to be the vehicles that drive the most impact.
When you frame the CEO challenge as building the longest “Archimedes Lever” as you can with a small group of people, it enables you to focus on your management sandbox and how you can improve it, instead of getting into others’. I think that is a commonality of a lot of successful CEOs whether by explicit design or conscious effort. Ultimately, we are working to create an environment, workplace, team dynamic, and culture that can be a vehicle for real change, whatever the change we’re trying to make is.
CL: For those that don’t know can you define Wunder Capital as a business?
BB: We are a marketplace lender in the way that Lending Club allows someone to refinance credit card bills with an investor like yourself that wants to make a fair market return. We are doing fundamentally the same thing, but instead of refinancing credit card debt, you are helping businesses to complete solar projects and in turn you get paid a competitive projected interest rate.
Our average loan request is roughly $500K. We have two active funds on our website currently in which any investor in the US - thanks to the Jobs Act - can have pro-rata rights to a solar debt portfolio, and immediately get diversification across a range of solar project loans. We use the proceeds from these projects to provide investors with up to 8.5% projected yields over the five to ten year lifecycles of the portfolio.
Additionally, we take the solar system as collateral and the fund will operate the solar power system on behalf of the client if needed. The data is emerging as solar assets get older what a promising route operating and monetizing the solar project is for recovery if there is a default on a project. It’s an exciting early inning story that is emerging and we see as positive for our investors.
CL: Can you talk a bit more about the factors that are enabling solar projects to take off, and are we starting to see Moore’s Law apply to the solar space?
BB: We have had a Moore’s Law equivalent since roughly the 1970’s. It’s been just as consistent but not as fast. The issue for those 40 years was solar was getting cheaper but it was still not competitive with traditional power sources. In the last five years however, that technology curve has allowed solar to become more and more competitive with traditional sources of energy. Our industry can now walk into a business, municipality, hospital, or university, and for a growing percent of the country, make an offer that realizes both immediate and long term energy cost savings, and has a positive environmental impact.
CL: Providing access to investments in the solar space is definitely an exciting value proposition to retail investors. But why do the solar markets need access to our capital, and how are they currently being underserved by the institutional markets?
BB: The impetus for starting Wunder was an observation that in the solar market, projects below $5M were often not funded because of concerns around the profitability of financing the project. With the automation of different pieces of the value chain, thanks to the application of software, we felt we could make the market more efficient while providing access to a part of the market that had been inaccessible until this point.
Though there are plenty of folks willing to lend $5M+ for solar financing projects, the market below $1.5M has been deeply underserved by the specialty finance space. We thought that bringing software to this specific commercial lending space for raises that involved less than $1M made economic and impact sense.
Our feeling was that we could provide real value to these types of organizations that struggled with financing solar systems, and be a part of seeing the solar market grow.
CL: How do the rates of Wunder compare to other institutions and do you have a sense of what default rates in the future can look like?
BB: If someone puts up a piece of real estate as collateral they may be able to get a better rate from a bank or credit union, but they’ve had to leverage a piece of property for that project instead of using that capital for another need in the business. Our experience has been that within our focus of using solar projects as collateral for a solar financing, just like in auto or equipment financing, we are most often the best rate.
Solar has only started to scale in the last five years so there isn’t much historical data available. But in addition to providing a good rate of return to investors it is also a unique opportunity in that it’s not only asset backed but has a compelling projected recovery value.
One thing I want to make explicit is that in the case of a default on one of our loans we have found that the best path to monetization and recovery for that project is to go to the tenant of the building and offer to provide the solar power to them. With rates on solar becoming more and more competitive, that is often an attractive offering to the tenant. And for our investors it provides a projected stream of income to help recover the cost of the default.
A good example of this is SolarCity’s published data on contract reassignment. In 2014 SolarCity revealed that it was able to recover 81 cents on the dollar in the case of default by exercising ownership, and converting many new homeowners or tenants with offers of 10 or 15% savings on their power bills. That’s a unique feature of solar projects, they generate a projected cashflow to recoup potential losses.
CL: In 2016, you moved away from a project by project investment strategy to building a fund structure. Can you talk about the thought process to take this approach and how it will help the business achieve its long term goals?
BB: It was late 2014 when we realized that the project by project model would not work. We identified two fundamental problems. The first problem had to do with managing the investor side of the business. At the time, we were running our business in a similar manner to Angellist, in which investors come in and establish themselves, companies come in and provide some information, and then those parties are matched on a one-to-one basis.
We quickly saw on the investor side that folks wanting to put in $5 to $10K were happy with 1 to 2 deals. However, those with six-figure appetites and more wanted diversification. But executing 40 to 50 deals and getting 40 to 50 K1’s or 1099s didn’t exactly make for a very seamless and pleasant investor experience.
On the borrower side, we realized that some individual investors were quick and professional to deal with while others were not. Timing of the process was anything but standard, which made it hard for us to deliver a high quality experience to our borrowers and provide a consistent source of deals to investors. At that point we felt that Wunder needed to live in the middle.
Savvy investors showed a willingness to have us curate a portfolio for them as long as we made them aware of the criteria we were using to make our investment decisions. In our latest fund we have more than 40 projects. This means if you make an investment today you automatically get diversification into all of those deals through one decision on your part. It’s also only one tax document for you as the investor, and Wunder acts as the lender enabling us to be a better counterparty for both sides.
We launched our first fund in April 2015 and now we are on our fifth fund and continuing to grow volumes consistently.
CL: Do you think that Wunder would ever move to obtaining capital from institutional investors as many of the crowdfunding / P2P marketplaces have gone to find more efficient sources of capital?
BB: We are absolutely interested in bringing capital into the solar market through whatever sources are excited about deploying capital through Wunder. We see the commercial solar market as the greatest opportunity to do that right now.
Though we are gratified by and love serving individual investors, we are happy to be bringing institutional capital to our underfunded space as well.
In 2006 and 2007 Lending Club and Prosper showed us you could go directly to individuals as a way of lending and borrowing money, without needing to go through the traditional institutional capital market channels. This innovation in crowdfinance has played out in exciting and dynamic ways. We have seen that we can bring new assets classes and investment markets to retail investors.
But once you hit a certain critical mass I think you have seen lenders open their doors to multiple sources of capital as a way to proliferate and serve as much of their underserved markets as possible. We have therefore been working with institutional investors for more than a year, and recently launched a dedicated product for those investors’ needs.
CL: It appears Wunder is taking an online ad and social media approach to obtaining retail investors. What do customer acquisition cost currently look like and how are you hoping to lower them as you scale the business?
BB: I will say we are margin positive, which is frankly exciting in and of itself. We have been able to grow dollars in the door from retail investors 5x in the last few years without scaling our marketing budget nearly as much. We have established a successful and cost effective fundraising channel that we are proud of. I know that at industry events like Lendit you often hear organizations bemoan the cost of retail customers, but that hasn’t been the case for us.
What we have done really well is we have defined our archetypal investor types and determined where they are coming from, which allows us to target those niche groups. This approach has been really successful for us.
I think individual investors as a capital channel are strategic from a diversification standpoint during periods when other capital sources might freeze up and lose their appetite for investing.
I think diversifying our platform to source investment from a range of direct investors, smaller banks, and large institutions provides the flexibility required to weather different economic conditions. I think that’s a lesson we all learned from late 2008 and 2009 when institutional capital was extremely hard to come by.
Additionally, working with institutions provides a bit more predictability to help us effectively match our pipeline demand. At times, we do have matching challenges with the supply of capital and demand for capital sides of our business. So having a partner committed to providing X millions over a year helps us to be able to plan ahead effectively, which is an underdiscussed yet valuable dynamic of more institutional capital.
CL: Who are some of the organizations that you are working with to source solar projects?
BB: We have over 100 partners in 30+ states. The first thing to know is that we have a roughly 30% approval rate of all potential partners we see. Our diligence process is extremely rigorous because we not only care about the quality of the company we are lending to, but we also care that the solar power system being built will create high quality electricity. Reason being, if god-for-bid the company defaults, we want quality assets that we can work with to get as close to full recovery for our investors as possible.
For that reason, we tend to work with local and regional leaders that have a deep pipeline of experience. We make sure that their past projects are producing well and we complete onsite visits to ensure they are high quality firms.
The companies we lend to tend to be people that got out in front of the trend in solar and yet aren’t quite SolarCity. That’s the sweet spot for us: large established firms that know what they are doing but aren’t big enough to have their own structured finance teams. That said, more than 10 projects have been submitted to us by SolarCity. And we love offering our lending services to them to fill a gap or hole they might have.
CL: On the flip side what do your retailer investors look like? Is there a core type of investor that is coming to the platform?
BB: We have a younger bias than you might expect, though we just last month launched a tax-free IRA account for our investors. Perhaps that youthful bias speaks to generational awareness of and excitement about Wunder’s double bottom line impact.
When they see an investment with a quality underwriter making up to 8.5% that typically gets our target retail investor over the hump to do two things they wanted to do anyway, make a competitive projected return and address our climate challenge. If I had to sum it up, I’d say our typical investor is someone who is very excited about impact & double bottom line investing, but also needs a quality risk-return investment. Wunder is able to fit in the middle of those investor needs and meet a real market need.
CL: How is Wunder monetizing the platform and does the organization take a stake in the loans it offers on the platform?
BB: Wunder is just like Lending Club in that we are not coming in and take a spread, which misaligns incentives with our investors. Instead, like Lending Club, we take a market-standard loan origination fee. Additionally, each time a borrower pays a Wunder bill, we charge a 1% servicing fee. Currently, there is no investor fee.
CL: Are there plans to provide access to this investment class for non-accredited investors?
BB: We would absolutely love to! We have spent a considerable amount of time evaluating what those options are and what the regulatory cost and burden would be. Unfortunately, right now we don’t see a clear path to doing this profitably due to the regulatory cost of raising funds through avenues available to non-accredited investors.
There are some exciting areas that are rapidly evolving, and the way the dominos fall could change those plans very quickly. We have a variety of products and marketing ready to go for a non-accredited product but we need to make sure all the regulatory cost will be manageable.
All that said I am bullish on the likelihood that we do get there. I don’t know what path it will be but I think there are some really good macro winds at our backs on bringing individual capital to opportunities like this. I also think legislation such as regulation A+ that has helped to modify some prior limitations in the 2012 Jobs Act is helping to open up these spaces, and bringing a balance to guarding from fraudulent activities in the alternative investment space, while opening up capital availability and flexibility in an unprecedented fashion.
I really am hopeful and optimistic that over the next 2-3 years there will be outlets for individual investors in investment platforms such as Wunder. We most definitely intend to be early adopters of whatever that framework is.
CL: What have some of the larger challenges been in building this business that you didn’t expect to face when you started the business?
BB: I suppose I have been a little surprised that we did not have a meaningful accelerant to get the track record we now have, where we are working with a whole range of investors. We have been able to get to the point where we are garnering a lot of interest from institutional investors.
But given the urgency of our climate situation, that there wasn’t an accelerant - someone coming in with a large amount of investment or a large dose of distribution – and that we had to build that track record $25k of investment at a time, was an unexpected challenge.
CL: To date, you have raised about $6M from some notable Fintech investors including Fintech Collective, and Fenway Summer Ventures. What did you see in this group of investors and how do you plan to deploy this capital?
BB: The vast majority of our spend has been and will be on head count and services for them, and the little bit that isn’t is for flying around to conferences and that sort of work both in hiring and bringing in investors.
The Minute Rundown with Bryan Birsic
CL: If you could provide one tip to someone considering starting up what would it be and why?
BB: My suggestion would be to optimize for self-improvement. Number one under that to do list is to optimize your feedback loops. What that means is surrounding yourself with individuals who will give you feedback and create a culture where that is expected. The way extraordinary people get there, it seems to me, is by improving yourself very deliberately over time.
In athletics, you can see it clearly but it applies in all spaces. If you are looking to do extraordinary things as a founder you have to do the work. You won’t build something extraordinary beyond your current capabilities because you hit it the right way right off the bat, but because you are a truly extraordinary badass that your team rallies around and works to the bone alongside. And the only way to be extraordinary is feedback.
My other favorite tip, other than building a strong feedback culture, is getting people who want to be thrown into the deep end. If you want lots of responsibility, more than you can handle, hey great news: I have a startup for you. Joining a startup is a future commitment to hardship and growth. Get a group of people who throw themselves into that challenge, and you’re halfway there.
So to me it’s mainly about commitment to personal growth and feedback loops. If you do both of those you will be great. It might take 5-10 tries to get to extraordinary, but we will all be alive for a long time. And that’s the only way to get there, far as I can tell.
As you can see Bryan is a thoughtful individual who is taking his own desire to better himself every day in order to better our planet and our wallets in a coordinated dance of good. It is terrific to see the application of the marketplace lending model to markets in great need of capital such as the solar projects market.
If we are truly going to reach our goals of adopting more renewable energy, the time is now to invest in capital projects that will help to deter the use of non-renewable energy resources. Opening up access to this investment class is to open up the American people to vote on the earth they want to see tomorrow.
I couldn’t think of a more exciting application of Fintech investing. It’s truly remarkable. To learn more and to invest check out Wunder here.