Initiation Report: Aurora Solar

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Summary 

Aurora Solar, a leading provider of end-to-end solar software solutions, is revolutionizing the solar industry known for complex, manual, error-prone, and expensive processes. As the solar market rapidly expands into a $100 billion industry and the fastest-growing power source globally, the need for innovative technologies to optimize operations and enhance profitability becomes paramount. Aurora Solar seizes this opportunity by enabling customers to streamline sales cycles, scale design operations, and automate inefficient manual workflows with its tailored suite of software tools. The company’s track record of successfully completing over 10 million solar projects speaks to its credibility, while its AI-powered software has garnered the trust of 90% of the top 100 US residential solar installers. With a skilled leadership team, Aurora Solar is poised to continue disrupting and innovating in the solar SaaS landscape. Expanding its reach worldwide further amplifies the company’s revenue growth potential. 

Methodology 

Our views on Aurora Solar are derived from our rigorous research process, involving proprietary channel checks with users, competitors, and industry experts, and synthesizing publicly available information from the company and other reliable sources. 

Key Points 

• End-to-end Solar Software Service Provider: An asset-light model, the Aurora platform seamlessly integrates cutting-edge technologies, serving solar service providers, OEMs, SaaS companies, and other partners across the solar energy ecosystem. With strategic collaborations, business management tools, and a comprehensive ecosystem, Aurora Solar optimizes solar operations with unparalleled efficiency. 

• Impressive Operational Track Record Affirms Credibility: Led by an experienced management team, Aurora Solar boasts a vast portfolio of 10 million solar project designs and serves over 7,000 customers, delivering 100,000+ projects every week. The quantifiable advantages of their integrated solutions make them an excellent choice for customers and an attractive investment opportunity, supported by client testimonials highlighting significant time reductions in the design process and sales-to-install timeline. 

• Large and Growing Addressable Market: Aurora Solar is poised for significant growth in the expanding solar software market, with a projected total addressable market of $3 billion in the US and $19 billion internationally by 2025 – as per Energize Ventures. With plans to expand in Canada and other countries, the company aims to capitalize on the global surge in photovoltaic capacity, which grew by 25% in 2022, reaching around 1.2 terawatts. 

• Regulatory Tailwind - An Added Boost: With the global push toward reaching net zero carbon emissions, Aurora is at the forefront of streamlining solar energy adoption. Renewable energy accounts for approximately 21% of energy consumption in the United States and is projected to increase to 42% by 2050. Aurora is actively driving this transition and positioning itself as a “go-to” company in the solar SaaS market. 

• Intensifying Competitive Landscape Could Pressure Premium Pricing: Aurora Solar’s advanced platform commands a premium price compared to its competitors, and demands a robust system configuration for optimal performance, both potential limiting factors. 

• Valuation: Aurora Solar was last valued 

Executive Summary 

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In an industry notorious for complex, highly manual, error-prone, and costly workflows, Aurora Solar is fast emerging as a leader with its end-to-end solar software solutions. While the hardware cost of solar installation has come down significantly in the last few years, software costs remain persistently elevated. Driving soft costs down is critical to achieving and maintaining the necessary cost-effectiveness for solar to remain competitive in the energy market. With solar emerging as a $100 billion industry and the fastest-growing power generation source worldwide, it become vital for solar developers to adopt innovative technologies that optimize operations and maximize profitability. The industry’s imminent shift toward digitization presents a massive opportunity for Aurora which enables its customers to accelerate sales cycles, scale up design operations, and replace costly and inefficient manual processes with automated and integrated workflows. The company’s comprehensive suite of tools and features tailored specifically for the solar industry empowers businesses to navigate the complexities of solar project development efficiently. The successful completion of over 10 million solar projects bears a testament to the credibility of its business model. Moreover, with 90% of the top 100 US residential solar installers relying on Aurora’s AI-powered software, the company has established itself as a credible solar SaaS service provider. With a talented and experienced leadership team at the helm, Aurora Solar is well-positioned to continue disrupting and innovating in the rapidly growing solar SaaS landscape. With its established success in the US, the company holds immense revenue growth potential through geographical expansion across the globe.

Investment Thesis

Aurora Solar is a compelling company in the rapidly expanding solar energy ecosystem. The company distinguishes itself with its one-stop solutions for solar SaaS. By leveraging its deep expertise in solar installation and marketing processes, the company is rapidly advancing within the solar SaaS domain. Aurora Solar’s hyper-focus on cutting-edge technology is evident in its customer testimonials. Its software solutions significantly reduce the solar project timeline, which is both time-saving and profitable for the customers. Client testimonials showcasing a reduction in design process time from 2 weeks to 15 minutes as well as a 20-day reduction in the sales-to-install timeline, etc. support the credibility of Aurora Solar’s offerings. Aurora Solar’s comprehensive suite serves a wide range of customers such as solar service providers, OEMs, SaaS companies, and other technology partners, demonstrating the potential of its technology. Aurora Solar’s strategic partnerships with Mosaic, a solar financing platform, and Nearmap, a geospatial mapping company helped enhance the range and efficiency of its offerings. Moreover, the acquisition of Folsom Labs helped in penetrating the commercial space. A technically oriented software platform and a strong track record will enable Aurora Solar to scale in various geographies. The company is well-positioned to dominate the solar SaaS market, with a solution that is both time-saving and profitable for its clients.

Valuation

Aurora Solar was last valued at $4,000 million when it raised $200 million in a series D round. The company has raised $520.4 million to date and key investors in the company are Coatue Management, Energize Ventures, Emerson Collective, Fifth Wall, ICONIQ Capital, and Lux Capital, among others.

Company Overview

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Founded in 2013, Aurora Solar is a California-based software solutions company, focusing on solar energy. Aurora Solar’s business model aims to provide a hassle-free experience in designing, selling, and delivering solar projects through its platform. Aurora has helped design over 10 million solar projects, powering over 275,000 solar projects each month. The company is recognized in the 2022 Deloitte Fast 500 as well as the 2022 Forbes AI 50

Aurora Solar offers cutting-edge software solutions for the solar industry, empowering professionals to design, sell, and deploy solar installations efficiently. Their cloud-based platform integrates advanced algorithms and 3D modeling technology to assess solar potential and create detailed plans. With 10 million projects and growing, annual revenue exceeding $100 million, and a 50% yearly growth rate, Aurora Solar is a leader in streamlining the solar project lifecycle and driving success in the industry.

Aurora leverages cutting-edge technology such as LiDAR, satellite imagery, and data analytics to conduct comprehensive site surveys. Their cloud-based software revolutionizes the solar industry by providing a range of invaluable features, including precise rooftop measurements, eligibility assessments, and streamlined solar design automation. By harnessing the power of satellite images and LiDAR data, Aurora can remotely measure rooftops and swiftly generate proposals for solar installations in as little as 15 minutes.

Aurora Solar has 8 utility patents, including patents for 3D building modeling system and automated three-dimensional building model estimation.

Key Investment Positives

End-to-end Solar Software Solutions Provider

The Aurora platform seamlessly integrates a diverse range of state-of-the-art technologies and provides comprehensive services across various sectors within the solar energy industry. The company caters to solar service providers, original equipment manufacturers, Software-as-a-Service businesses, and other technology partners. The organization collaborates with leading manufacturers of solar panels, inverters, optimizers, racking, storage, microgrid technologies, as well as distributors of solar, electrical, and roofing equipment. Additionally, the platform offers extensive business management capabilities, including customer relationship management, project management, logistics, inventory management, and more. These features empower Aurora users to optimize their solar operations with unparalleled efficiency. To further strengthen its ecosystem, Aurora Solar actively seeks strategic agreements with solar marketing agencies, operations and maintenance companies, and other service providers.

Catering to both residential and commercial customers, Aurora offers an array of products and services, including:

• Lead Capture AI: This software tool helps the sales team of Aurora’s client with project estimates, data analysis on sales leads, and curtailing customer acquisition costs. The tool claims up to 4x increase in website leads for its customers.

• Aurora AI: This software tool helps Aurora’s client with generating 3D models, real-time design process, shading analysis, and production estimates.

• Sales Mode: This software tool helps Aurora’s client with generating 3D models, real-time design process, shading analysis, and production estimates.

• Contract Manager: The tool is used for creating and managing solar project-related documents. It automatically populates the documents with project details, allows e-signature, and stores all documents for future usage.

• Plan Sets: The tool provides a workflow for the project cycle. Leveraging Aurora’s database helps reduce Authority Having Jurisdiction (AHJ) revision requests.

• Design Mode: It is a tool for remote site assessment, LIDAR-based shade analysis, and AI-assisted 3D modeling.

• Expert Design Services: This offering includes data privacy-protected design services by experts. The tool helps Aurora’s clients with scaling without design backlogs.

• HelioScope: The tool was added to the portfolio of Aurora post-acquisition of Folsom Labs. Through the offering, Aurora Solar entered the commercial and industrial space. The offering includes design, sales, and financial analysis services for commercial and industrial projects.

Impressive Operational Track Record Affirms Credibility

Aurora Solar’s strong operational track record of over 10 million solar projects serves as a powerful validation of its credibility, making Aurora a reliable provider for solar professionals. The company’s expertise and proven track record have helped its clients to navigate the complexities of an ever-evolving solar landscape that has also resulted in tangible benefits for its clients. These quantifiable benefits make it a suitable service provider for customers as well as a lucrative investment opportunity for investors.

The technically oriented software platform of Aurora Solar allows it to stand apart in the solar SaaS landscape. For instance, the SunFarm Energy team leveraged the full potential of Aurora throughout the customer journey, starting from lead acquisition on the website using Lead Capture AI to the generation of automated contracts through Contract Manager. Aurora’s precise design proposals facilitate transparency at every stage of the client’s purchasing process, from initial interest to final installation.

To illustrate, as part of a strategic digital marketing initiative aimed at enhancing paid advertising and optimizing search engine optimization, SunFarm Energy successfully implemented Lead Capture AI on its website to swiftly engage potential customers. Homeowners can now visualize solar installations on their roofs and determine if it is a suitable option for their homes. This optimization process ensures that only qualified leads progress to the sales team, maximizing efficiency. Once a client submits their information, it seamlessly flows through Zapier to SunFarm Energy’s CRM, where all leads are stored. The sales team then utilizes Aurora’s Sales Mode and Aurora AI to rapidly generate a proposal-ready design, which is shared with homeowners. 

Furthermore, the SunFarm Energy sales team relies on Contract Manager, Aurora’s integrated e-signature solution, to facilitate smooth deal closures. Through Aurora’s exceptional design accuracy and seamless customer experience, SunFarm has established itself as the leading solar installer in northwest Florida. Beyond solidifying its position, Aurora has played a vital role in SunFarm Energy’s growth. Streamlined processes and improved conversion rates have enabled SunFarm to surpass 10 megawatts of installations in 2023.

SunFarm has achieved an impressive open-to-lead capture rate of 25%, indicating that one-fourth of web visitors who engage with the Lead Capture AI ultimately provide their information to SunFarm for further follow-up. With the aid of Sales Mode and Aurora AI, these leads are efficiently managed and nurtured, driving business growth for SunFarm Energy.

“Aurora is the only tool in the market that matches the technical acumen of our team. We differentiate ourselves through our educational and consultative approach, and Aurora’s cutting-edge technology helps us help our clients make the best decisions when going solar.‘‘

- Nathan Kercher, Vice President of Business, SunFarm Energy

In 2022, Aurora Solar partnered with Mosaic, a leading financing platform for residential solar in the US. This collaboration allows solar installers to seamlessly access Mosaic accounts within Aurora Solar, providing homeowners with competitive financing options and instant loan pre-approval for solar and storage projects. The partnership aims to simplify the solar buying experience, offering homeowners affordable financing options alongside sales proposals. Both companies have achieved notable milestones, with Aurora Solar launching new offerings and surpassing 7 million solar projects designed, while Mosaic has funded over $6 billion in loans and helped 200,000 homeowners switch to sustainable energy since 2012.

Large and Growing Addressable Market

According to Energize Ventures, solar software will be a $3 billion TAM in the US and $19 billion internationally by 2025.

Aurora Solar is well positioned to become a highly valuable software solutions company in this large and growing market. 

Aurora Solar currently operates in the US with plans to expand in Canada. Geographical expansion is expected to be a key revenue driver. For instance, global installed and commissioned photovoltaic capacity experienced a remarkable 25% growth in 2022, with global PV capacity reaching approximately 1.2 terawatts. China maintained its position as the leading country in terms of installed capacity. According to the International Energy Agency’s Snapshot of Global PV Markets 2023 report, 240 gigawatts of new solar PV systems were installed worldwide, resulting in a cumulative capacity of 1,185 GW. China accounted for 106 GW of the new capacity, representing 44% of the global additions and pushing its cumulative installed capacity to 414.5 GW. The European Union emerged as the second-largest market, with 38.7 GW of solar capacity installed in 2022. Spain, Germany, Poland, and the Netherlands were the leading EU countries in terms of capacity. Meanwhile, India’s annual installed capacity reached 18.1 GW, but its cumulative capacity remained lower than Japan’s, which reached 84.9 GW with only 6.5 GW added in 2022. For reference, the US installed 18.6 GW – the market in which Aurora Solar operates.

Initiatives by Local Communities Propelling Adoption: Cities across the United States, such as Atlanta, Boulder, Minneapolis, Salt Lake City, San Diego, San Jose, St. Louis, Cleveland, and many others, have made firm commitments to achieving 100% renewable energy. This presents a multitude of lucrative business prospects for solar companies to capitalize on and meet the community’s energy requirements through solar solutions. Just like Cincinnati, numerous cities are actively engaged in promoting the growth of local solar projects or directly seeking proposals from solar companies. According to Utility Dive, a consortium of 20 cities, including Boston, Chicago, Houston, Los Angeles, Portland, and Orlando, has joined forces to collectively issue Requests for Proposals (RFPs) with the intention of procuring a staggering 5700 GWh of renewable energy. Furthermore, notable cities such as Los Angeles, San Francisco, Portland, and Seattle have collaboratively issued a Request for Information (RFI) for the development of electric vehicle charging infrastructure, presenting an extraordinary opportunity valued at over $10 billion. Other examples of cities incorporating solar development into their 100% renewable energy commitments include:

• Concord (New Hampshire) is strategically planning the development of a substantial solar plant on a closed landfill while simultaneously implementing local zoning adjustments to optimize the integration of local solar projects.

• Denton (Texas) has demonstrated its commitment to renewable energy by granting approval for a contract pertaining to a remarkable 100 MW solar project.

• Denver (Colorado) is taking significant steps to promote solar energy adoption. In conjunction with its community solar program, Denver has established a mandate that all new constructions must achieve net-zero status by 2035, effectively fostering an environment that encourages greater utilization of solar energy in new building projects.

• Fayetteville (Arkansas) is proactively exploring opportunities to deploy solar projects on its municipal buildings, exemplifying its dedication to harnessing the power of solar energy.

• Orlando (Florida) stands at the forefront of pro-solar initiatives. One notable endeavor, the Collective Solar Cooperative, empowers residents to leverage economies of scale while procuring solar systems, thereby enabling them to maximize the benefits of solar energy adoption.

Numerous cities, despite lacking ambitious objectives, possess compelling motivators to propel the development of clean energy at the local level. An illustrative instance is Watertown (Massachusetts) wherein a recent mandate requires solar installations on every newly constructed commercial structure exceeding 10,000 square feet. This trend extends nationwide as communities spearhead the transition towards clean energy, presenting favorable outcomes for the solar industry and ultimately bolstering Aurora Solar’s revenue expansion.

Growing Investment in Solar Photovoltaic Technology Startups: In 1Q23, solar photovoltaic technologies startups raised an impressive $1.3 billion, slightly surpassing the average quarterly amount in 2022. As numerous countries aim to achieve their decarbonization goals by 2030, this year serves as a crucial milestone, demanding immediate action. While renewable energy alone cannot meet interim decarbonization targets, it constitutes a significant part of most regions’ plans. Solar photovoltaics is expected to fulfill most of these targets due to its technological maturity.

Over time, the cost of solar energy has significantly decreased as cumulative capacity has grown. As a result, the levelized cost of energy for solar photovoltaics is now one of the most affordable among all energy sources. Adopting renewables such as solar also provides countries with a degree of energy independence, allowing them to generate their power domestically rather than relying on volatile fuel imports. For instance, solar energy is projected to play a pivotal role in Germany’s transition away from Russian fossil fuels following the imposed sanctions.

Four out of the five largest venture capital deals for solar photovoltaic companies in 1Q23 were secured by Chinese companies. The US is actively focused on enhancing its domestic hardware manufacturing capabilities, primarily through federal incentive schemes, such as those supported by the Inflation Reduction Act. The largest deal was the $291.1 million Series B funding raised by China-headquartered HuaSun Energy, followed by Germany-headquartered Enpal’s $228.4 million Series D funding.

Compared to other low-carbon energy technologies, solar photovoltaic energy has reached a relatively mature stage, with substantial capacity already installed, surpassing 880 GW in 2021. Additionally, manufacturing costs have decreased with economies of scale. The demand for solar panels continues to rise to meet decarbonization targets, presenting opportunities for solar panel manufacturers.

Apart from well-established manufacturers, the high demand for solar energy, an essential component of many regions’ net-zero strategies, has led to the emergence of a robust venture capital-backed solar production sector. Since 2019, investment in solar photovoltaic companies has been steadily increasing, rising from $0.9 billion in 2019 to $5.3 billion in 2022. Other regions are striving to reduce their reliance on China, but achieving this will require substantial incentives to support rapid growth in the solar industry, making it more of a medium- to long-term plan. The United States is at the forefront of domestic solar production plans, primarily due to recent incentives and industrial policies, including those outlined in the Inflation Reduction Act:

• Approximately $30 billion in production tax credits to accelerate domestic manufacturing of solar panels and related hardware.

• Investment tax credits for establishing manufacturing facilities for solar modules and wind turbines.

ESG Commitments Boosting Adoption of Solar SaaS: Investors’ commitment towards environmental, social, and governance (ESG) principles is rising, as they expect their portfolio companies to align with these goals. Embracing solar energy demonstrates a strong commitment to sustainability, signaling to investors that a company takes ESG seriously. Forward-thinking companies with a strategic mindset can proactively tackle climate-related risks and the transition to a net-zero economy by investing in solar energy projects that qualify for federal solar investment tax credits (ITCs). These investments, often referred to as green impact investments, not only strengthen a company’s dedication to a sustainable, clean energy future but also enhance its financial performance by aligning with climate-smart ESG investments.

Typically, these investments offer a swift capital return through relatively lower-risk infrastructure assets, with a significant portion of the return derived from the ITC. The ITC is immediately recognized when a solar project is operational, maximizing environmental, social, and other benefits while insulating the investment from internal and external risks. Incorporating ESG factors into the investment process enables companies to safeguard their investments and optimize their positive impact. For reference, the solar investment tax credit stands as a vital federal policy tool for supporting solar energy growth in the United States. Since its enactment in 2006, the U.S. solar industry has experienced exponential growth of over 10,000%, generating hundreds of thousands of jobs and injecting billions of dollars into the national economy.

While organizations strive to drive environmental progress, they must also consider the financial implications of sustainability investments. Solar energy directly addresses this challenge by providing businesses with a cost-effective and eco-friendly power source that immediately reduces operating expenses for decades to come. The cost of solar installation is now lower than purchasing electricity from utilities, offering organizations a win-win situation: reducing overall energy spending while mitigating price volatility throughout the solar system’s 30-year lifespan. Additionally, going solar unlocks substantial tax incentives, including a 30% federal tax credit based on the solar project cost, accelerated depreciation benefits, and local financial incentives. Solar also complements energy efficiency investments such as lighting or equipment upgrades, with system size tailored to a facility’s current and future energy needs. Engaging a qualified solar provider can optimize existing or planned efficiency projects, maximizing energy cost savings and carbon reduction efforts at the site.

Increase in Moderate and Low-Income Households is an Emerging Market: The solar market presents a lucrative opportunity in targeting moderate- and low-income households as potential customers. With declining solar costs and expanded financing options, these communities are becoming increasingly viable for forward-thinking solar contractors. Successful solar policies implemented nationwide aim to achieve more balanced market participation across income levels. The 2016 Low-Income Solar Policy Guide highlights various federal, state, and local policies that enable low-income communities to access solar, emphasizing the valuable investment in this untapped market sector. Amidst intense competition, solar contractors must seek innovative ways to sustain growth and differentiate themselves. Broadening and diversifying customer demographics can prove advantageous from marketing, financial, and mission-driven perspectives. Aurora Solar will act as a catalyst to drive the adoption of solar energy in this niche by streamlining processes through its technically oriented software solutions.

Asset Light Model

As a result of its primary emphasis on offering software solutions to clients, Aurora’s business model has an insignificant need for physical assets. The value of Aurora is found in the process optimization it offers through its efficient software solutions. The business’s area of expertise is assisting businesses along the solar value chain with engagement, sales, and delivery. This entails utilizing cutting-edge software to increase sales, pinpoint locations with a high potential for solar energy, and analyze vital data such as cost and energy usage. Since the services are offered online, the organization won’t need to make a significant capital expenditure to expand geographically. Additionally, its successful track record in the US will increase the confidence of prospective customers all over the world.

Regulatory Tailwind - An Added Boost 

Aurora is at the forefront of the global drive towards achieving a net zero carbon emission society through streamlining installations and turbocharging sales. Currently, renewable energy accounts for approximately 21% of energy consumption in the United States and it is projected to reach 42% by 2050 – as per Energy Information Administration. Moreover, Solar energy stands to gain immensely from the reduced reliance on fossil fuels, aided by initiatives like the Solar Energy Manufacturing for America Act (SEMA), enacted in August 2022. SEMA seeks to bolster solar manufacturing by introducing attractive incentives, including a 30% tax credit and a $10 billion investment tax credit for new clean energy manufacturing facilities, alongside $9 billion in home energy rebate programs that prioritize providing clean energy to low-income areas.

Moreover, the inflation reduction act extends the highly valuable 30% residential clean energy credit, also known as the solar Investment Tax Credit (ITC). Previously set to decrease from 26% to 22% in 2023 and expire in 2024, this incentive has now been restored to 30% until 2032. Both residential and commercial solar installations can now enjoy a significant 30% tax advantage on solar and battery storage equipment installed from 2022 onwards. The act will further boost solar energy adoption thereby creating revenue opportunities for Aurora Solar as well.

The United States’ substantial investment in incentivizing solar energy production stems from its proven ability to significantly reduce carbon dioxide emissions compared to natural gas. Given that 90% of the top 100 US residential solar installers rely on Aurora’s AI-powered software, the company will witness surging demand with growing solar adoption.

As one of the 196 countries signatories to the Paris Agreement on climate change, the United States remains dedicated to fostering the growth of clean energy, with solar power emerging as the primary source. Consequently, the demand for solar energy is destined to continue its upward trajectory. Aurora, already established as the premier provider of design prototypes and project support, has experienced remarkable growth in recent years. While celebrating the milestone of surpassing 4 million solar projects in October 2020, Aurora achieved another significant feat in September 2022, surpassing 10 million solar projects, more than doubling its output in less than two years. As solar energy assumes an increasingly prominent role in the United States’ energy consumption, Aurora stands poised to reap the rewards of this transition toward clean energy.

Experienced Management Team

With top talent at the helm, Aurora Solar is leading the charge in the solar SaaS ecosystem. The company’s co-founders, Samuel Adeyemo, and Christopher Hooper are alumni of Stanford University. While Samuel brings in over 7 years of experience in JPMorgan Chase, Christopher founded startups such as e.quinox, a humanitarian organization, and BBOXX, a solar energy company, in the past.

Samuel Adeyemo, Co-Founder: Samuel Adeyemo, the Co-Founder of Aurora Solar, brings in over 7 years of experience in JPMorgan Chase. He received his bachelor’s degree in economics at the University of Chicago and his MBA in Business and MSc in Earth Sciences at Stanford University.

Christopher Hopper, Co-Founder and CEO: Christopher Hopper, the Co-Founder and CEO of Aurora Solar, founded startups such as Equinox, a humanitarian organization, and BBOXX, a solar energy company, in the past. He received a master’s in electrical and electronic engineering at the Imperial College London and received his MBA at the Stanford University Graduate School of Business.

Jesse Davis, VP of Enterprise Sales: Jesse Davis, the VP of Enterprise Sales of Aurora Solar, holds prior experience in leadership roles including Box, a cloud management company. He obtained his bachelor’s in business and entrepreneurship at the University of Wisconsin-Madison.

Justin Durack, VP of Enterprise Sales: Justin Durack, the VP of Enterprise Sales of Aurora Solar, founded numerous companies such as Sidekick Labs, a software development company, and Anglit, a fishing company. Justin was also an alumnus at Stanford University, receiving a bachelor’s degree in computer systems Engineering and then a master’s in computer science.

Annu Yadav, Head of Design: Annu Yadav, the Head of Design of Aurora Solar, was a Co-Founder and CDO of Amast Studios, a human-centered design digital studio, and was a Director of Design at Avametric, a fashion tech design company. Annu received a bachelor’s degree in Fashion Design and Technology at the National Institute of Fashion Technology and then received her MBA in Design Strategy at the California College of the Arts.

Key Investment Negatives

Intensifying Competitive Landscape 

Large SaaS companies such as Adobe, Autodesk Inc., etc can offer dedicated software for solar, thereby intensifying competition for Aurora Solar. Moreover, free platforms such as Open Solar, Pylon, etc. also create competition for Aurora Solar offerings. However, the core competency of Aurora Solar in the Solar SaaS ecosystem coupled with its robust operational track record will help the company maintain its competitive edge.

Aurora Solar’s advanced platform commands a premium price compared to its competitors, potentially impeding its adoption rate. Furthermore, Aurora Solar lacks a free trial period, which further discourages potential customers from trying out the product. However, in 2021, Aurora Solar acquired Folsom Labs, the developer of HelioScope, thereby introducing competitive pricing for commercial solar SaaS.

Requires High System Configuration to Run

Aurora Solar’s best-in-class platform demands a robust system configuration for optimal performance. In stark contrast to competitors like PVsyst, which necessitates a mere 1 GB of RAM, Aurora Solar sets a higher standard, mandating 4 to 8 GB of RAM, contingent upon the complexity of the project at hand. Aurora might have to launch a lite version when expanding into emerging economies.

Industry Overview

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The expansion of the solar software market is directly linked to the growth of the broader solar industry. As the number of residential, commercial, and industrial solar projects continues to soar, a plethora of lucrative business prospects will emerge for companies operating within the solar software market. Moreover, the soft costs associated with solar installations such as installation expenses, permitting fees, and financing account for over 50% of the total cost of implementing solar systems. Therefore, it is imperative to actively reduce these soft costs to ensure the continued competitiveness and cost-effectiveness of solar energy. Solar software companies improve the cost-effectiveness of solar installations, thereby making them a major driver of solar energy adoption.

The solar power market is steadily expanding due to falling equipment prices and increasing utility rates. The Inflation Reduction Act (IRA) further fuels growth by extending the Investment Tax Credit for solar until 2032. Despite this, the removal of urgency may impact consumer adoption. Aurora stands out due to its widespread adoption, with 80% of the top 75 US residential solar installers using Aurora software. They witnessed significant year-over-year growth in solar projects and system sizes. The average cost per watt also increased, deviating from the previous trend of decline.

The world’s fastest-growing energy source, renewable energy is crucial to achieving net zero global warming. Up until 2050, the US Energy Information Agency predicts that renewable energy sources will make up the majority of new electricity generation. This growth trajectory is contingent upon well-designed federal and state policies.

Three years in a row, solar added the greatest generating capacity to the grid, and it is expected to continue to do so through 2023. Solar energy accounted for 50% of all new electric capacity added to the grid in 2022, the highest share ever. Solar has been able to quickly grow its proportion of total U.S. electrical output from just 0.1% in 2010 to about 5% today owing to its growing competitiveness against other technologies.

Key Market Drivers

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Increasing Environmental Concerns: Fossil fuels are responsible for significant carbon dioxide emissions when combusted, contributing to climate change. In the United States, the power and transportation sectors are primarily accountable for approximately 75% of the country’s carbon emissions resulting from the burning of fossil fuels. On the other hand, solar energy offers a highly favorable environmental profile in contrast to fossil fuels. The greenhouse gas emissions associated with solar energy are negligible, as this technology operates without any fuel combustion. Furthermore, while concentrating solar thermal plants (CSP) may exhibit varying degrees of inefficiency in water consumption depending on the specific technology employed, employing the appropriate technology can substantially enhance efficiency. In contrast, photovoltaic (PV) solar cells do not require any water during electricity generation.

Favorable Government Policies: Government policies wield a profound influence on the adoption of solar energy, exercising the power to either stimulate or impede investments. Solar energy legislation enacted by the government takes various forms, encompassing mandates, subsidies, and tax incentives. Among these policies, the establishment of Renewable Portfolio Standards (RPS) stands out as the most impactful in driving the proliferation of solar power. RPS dictates that utilities must generate a predetermined portion of their electricity from renewable resources, including solar power. By ensuring a stable market for solar energy, these regulations fuel investment and foster growth. Moreover, government-backed tax breaks and subsidies specifically targeting solar energy installations serve to mitigate the initial costs associated with adopting solar power. Consequently, these regulatory measures enhance the accessibility of solar energy for both residential and commercial entities, bolstering demand and uptake. Furthermore, the federal government of the United States offers a tax credit equivalent to 26% of the total installation cost for solar energy systems. In addition, several states provide further tax rebates to incentivize the utilization of solar energy.

Declining Installation Costs: Over the past decade, the solar industry has experienced a remarkable cost reduction of over 50% in installation expenses, enabling its expansion into untapped markets and the widespread deployment of numerous systems across the US. Notably, the price of an average-sized residential solar system has plummeted from a pre-incentive rate of $40,000 in 2010 to approximately $25,000 at present. Moreover, utility-scale prices in recent times range between $16 per megawatt-hour (MWh) and $35 per MWh, rendering solar power highly competitive with alternative forms of energy generation.

Market Segmentation

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Residential Sector: The residential solar market achieved remarkable success in 2022, marking its sixth consecutive year of record-breaking growth. With a 40% increase compared to 2021, a total of 5.9 GW was installed. This upward trajectory can be attributed to various factors, including rising household electricity expenses resulting from the pandemic, frequent power outages, and favorable financing options.

However, the continued prosperity of this market is now facing significant challenges due to proposed revisions in Net Metering regulations across multiple states. In California, the introduction of NEM 3.0 is anticipated to have a profound impact, leading to a considerable market contraction in the near future. While ongoing projects operating under the current Net Metering rules will sustain growth in the California market until 2023, the outlook for 2024 indicates a sharp decline of approximately 40% in the residential segment.

Commercial and Industrial Sector: The commercial solar market, encompassing on-site solar installations for businesses, non-profits, and government entities, has experienced fluctuating growth patterns due to the ongoing process of unlocking the necessary financing mechanisms to cater to a diverse range of business types. Nevertheless, the promising trend of greater adoption by commercial, non-profit, and public organizations with a commitment to clean energy objectives sets the stage for substantial expansion in this sector. Considering that on-site solar currently caters to less than 1% of commercial electricity demand, a significant growth opportunity awaits exploration.

Utility-Scale Sector: The utility-scale solar market witnessed a series of fluctuations and challenges throughout 2022. In June, an executive order was issued, suspending solar tariffs until 2024. This critical decision allowed manufacturers to resume module shipments, averting the threat of substantial duties on imports from Southeast Asia posed by anticircumvention petitions. However, the implementation of the Uyghur Forced Labor Prevention Act introduced new obstacles, resulting in detained shipments, insufficient module supply, and persistent project delays.

Despite the difficulties in the supply chain, the procurement of new utility-scale solar projects has rebounded impressively, with a total of 10 GW worth of new projects contracted in 2022. The demand for utility-scale solar energy is expected to remain robust, driven by the forthcoming Inflation Reduction Act, which will bring much-needed stability to the market’s supply chain. This legislation will provide certainty and ensure a steady supply of modules, facilitating the progress of numerous states, utilities, and corporations in fulfilling their ambitious clean energy objectives.

Financials

Revenue Outlook

Disclaimer: Aurora Solar has not released audited financials and is not expected to do so until it files for IPO. The revenue model and the implied valuation are preliminary and are based on Manhattan Venture Research’s internal assumptions and will be adjusted to reflect any incremental information.

We constructed a top-down revenue model based on three data points on the company’s website: total number of customers in 2022, percentage of customers who adopted basic plan at $159/month, percentage of premium members at $259/month. Accordingly, we derived an annual revenue in the range of $145 to $181 million in 2022

Our estimated annual revenue for 2022 is supportive of comments made by John Tough of Energize Ventures, an early investor in the company. According to Mr. Tough, the annual revenue of Aurora Solar has surpassed $100 million and is growing at an over 50% annual rate.

We believe growing its geographic footprint will be a net additive to driving revenues and can be done with minimal capital expenditures given its asset-light model. Aurora has already announced plans to enter Canada.

Funding Rounds & Private Valuations

Aurora Solar has secured $520.4 million in funding across seven funding rounds. Aurora Solar’s approach of streamlining solar installation processes through SaaS has resonated with both customers and investors, leading to significant investor interest since 2019. Notably, the company raised $20 million in 2019, followed by $50 million in 2021, and $200 million in its latest funding round in 2022.

The company’s ability to attract investment has continued to grow, with its latest funding round – a $200 million Series D in February 2022 – being co-led by Coatue Management and Energize Ventures, with participation from Emerson Collective, Fifth Wall, ICONIQ Capital, and Lux Capital. The latest funding round valued the company at $4 billion, marking a 100% increase from its post-money valuation of $2 billion in Series C.

Comparative Public Multiples

The following table shows the multiples of public companies operating in solar energy, 3D modeling, and Software-as-a-Service space. The public multiples provide a useful reference point for Aurora Solar’s future valuation. Given the strong track record of the company in Solar SaaS, it is reasonable to expect Aurora Solar to command a premium over its public peer multiples. Aurora Solar’s technically oriented software solutions are poised to make it a highly valuable company.

About Manhattan Venture Partners

Our Research Methodology

Manhattan Venture Research provides clients with accurate, timely, and innovative research into the companies and sectors we cover. To that end, we have established an experienced team of analysts, researchers, economists, and industry veterans that focus exclusively on private companies with a proven track record of success. Producing quality research on a private company is uniquely challenging. Our analysts communicate with ex-employees, early investors, VCs, competitors, suppliers, and others to gather valuable information about the company under coverage. This information enables us to create unique financial models that value the underlying company and provide insight to our clients and industry experts, leveraging years of experience working for bulge bracket firms. Manhattan Venture Research reports include business and financial aspects of late-stage companies. These reports include but are not limited to industry overviews, competitor analysis, SWOT analysis, products (existing and in development), management and key directors, risks and concerns, other proprietary channels, historical financials, revenue projections, valuations (using various matrices and valuation recommendation), waterfall analysis, and a capitalization table.

Information Access Level Classification System (IALCS)

Manhattan Venture Research uses an Information Access Level Classification System (IALCS) to make clear the degree of access offered by the company(s) covered in all research reports.

Each research report is classified into one of three categories depending on its classification. The categories are:

I++: The company covered by the research report provided substantial disclosures to Manhattan Venture Partners.

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I: All reports are prepared using a mosaic research approach. Not all companies are willing and able to provide substantive access to management and information. In I reports no direct access was granted. 

About the Analyst

Santosh Rao

Santosh Rao has over 25 years of experience in equity research with a primary focus on the technology and telecom sectors. He started his equity research career at Prudential Securities and later moved to Dresdner Kleinwort Wasserstein, Gleacher & Co, and Evercore Partners, where he followed Telecom and Data Services. Prior to joining Manhattan Venture Partners, he was the Managing Director and Head of Research at Greencrest Capital, focusing on private market TMT research. Santosh has an undergraduate degree in Accounting and Economics, and an MBA in Finance from Rutgers Graduate Business School. While at Gleacher & Co he was ranked leading telecom equipment analyst by Starmine/Financial Times

-The MVR Team

Disclaimer 

I, Santosh Rao, Head of Research, certify that the views expressed in this report accurately reflect my personal views about the subject, securities, instruments, or issuers, and that no part of my compensation was, is, or will be directly or indirectly related to the specific views or recommendations contained herein. 

Manhattan Venture Research is a wholly-owned subsidiary of Manhattan Venture Holdings LLC (“MVP”). MVP may currently and/or seek to do business with companies covered in its research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This document does not contain all the information needed to make an investment decision, including but not limited to, the risks and costs.

Additional information is available upon request. Information has been obtained from sources believed to be reliable but Manhattan Venture Research or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. All pricing information for the securities discussed is derived from public information unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. MVP does not engage in any proprietary trading or act as a market maker for securities. The user is responsible for verifying the accuracy of the data received. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments, or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. Periodic updates may be provided on companies/industries based on company-specific developments or announcements, market conditions, or any other publicly available information.

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