Neighborhood Sun Investment Memo

By: KingsCrowd Capital, the first Data-Driven Fund in the Online Private Market, investing $10,000 in this round.

Synopsis

Solar energy stands out as a unique solution that reduces energy costs for consumers,, boosts company profits, and mitigates climate change.

Community solar is an ideal way to share solar energy's benefits. This model allows multiple participants to enjoy the advantages of a single solar power installation through subscriptions without needing to install solar panels on their own properties.

Neighborhood Sun Benefit Corp is a notable player in the community solar market, with strong potential for good investor returns.

With its tech-enabled platform, Sun Engine, Neighborhood Sun democratizes solar energy, making it accessible, transparent, and responsive to everyone, regardless of location or economic status. This innovative approach aligns with environmental concerns and meets the rising demand for renewable energy solutions.

Founded in November 2016 by Gary Skulnik, Neighborhood Sun has shown impressive growth. The company has partnered with 136 community solar farms across seven states, demonstrating a scalable and effective model for expanding solar access. In 2023, Neighborhood Sun generated $4.9 million in revenue, highlighting its platform's commercial viability and customer acceptance. The company aims to reach $7 million in revenue in 2024. With a valuation cap of $25 million, Neighborhood Sun offers an attractive deal to investors. KingsCrowd Capital believes the company has a high chance of being acquired by a larger competitor, providing investors with a generous return within the next five years.

Price

Neighborhood Sun is raising funds through a SAFE on Wefunder, presenting an appealing investment opportunity. The company's revenue grew from $1.9 million in 2022 to $4.9 million in 2023, demonstrating significant financial growth. With a valuation cap of $25 million and a 30% discount for early investors, this is a compelling entry point for potential investors looking to capitalize on the expanding US solar power market. With a 5.1x valuation-to-revenue multiple, the company's valuation is fair for investors.

Performance

Neighborhood Sun's revenue grew by 156.50% from $1.9 million in 2022 to $4.9 million in 2023, showcasing its team's sales capabilities and the increasing demand for community solar solutions. The company has already grown its Q1 2024 revenue by over 180% compared to Q1 2023, indicating a high chance of reaching its 2024 revenue goal of more than $7 million.

Managing 136 community solar farms across seven states, Neighborhood Sun holds a 30% market share in Maryland and 20% in Colorado. The Sun Engine software platform's development, launch, and utilization have been pivotal in achieving this scale, enhancing operational efficiency and driving customer acquisition and retention.

With a monthly burn rate of approximately $101,823 and $435,223 in cash on hand as of April 2024, Neighborhood Sun's financial management strategies will be crucial in sustaining its growth trajectory. The company's successful fundraising efforts, totaling $6.7 million to date, underscore investor confidence in its business model and growth prospects.

Differentiation

Neighborhood Sun has two competitive advantages: a great platform and a low price.

The company is more affordable than the grid, offering at least 20% higher revenues to solar farm managers and reducing customers' bills by at least 5%, often more. It also supports the development of new solar farms, which decarbonizes the energy used by Americans.

Compared to its community solar competitors, Neighborhood Sun is smaller but offers lower platform fees, making it more attractive to solar farm partners. This price advantage positions Neighborhood Sun as a likely acquisition target in the industry's future consolidation.

The Sun Engine platform is customizable, flexible, transparent, accessible, and responsive, contributing to significant revenue growth and operational efficiency. Automation within Sun Engine has been a key factor in this productivity increase, demonstrating Neighborhood Sun's commitment to leveraging technology for operational efficiency and customer satisfaction.

Neighborhood Sun's focus on making solar power accessible to everyone, especially those most vulnerable to climate change, positions it as a socially responsible player in the energy sector. This emphasis on inclusivity and empowerment through clean energy aligns with growing consumer and investor interest in sustainable and ethical business practices.

Team

Under the leadership of CEO Gary Skulnik, Neighborhood Sun is making significant strides in the community solar industry. Skulnik, a seasoned clean energy entrepreneur and climate advocate with 20 years of experience, brings a wealth of knowledge to the company. His previous success with Clean Currents highlights his deep commitment to renewable energy and his entrepreneurial spirit.

John Wilson, the Chief Technology Officer (CTO), brings nearly two decades of product and software experience, particularly in the solar sector. He leads the development of the Sun Engine software platform, showcasing his expertise and innovative approach to technology in the solar power industry.

Cara Humphrey, the Chief Revenue Officer (CRO), oversees the Community Partnership Program and other campaigns. Her background in commercial energy efficiency and the hybrid vehicle industry equips her with the skills to drive Neighborhood Sun's revenue growth and expand its market reach.

Emily Tokarowski, Vice President of Marketing, has shown remarkable progression within Neighborhood Sun, advancing in various roles over nearly five years. Her leadership in marketing and her educational background position her as a key player in promoting Neighborhood Sun's mission and services to a broader audience.

Risk

Even the best investment opportunities carry risks.

Neighborhood Sun has demonstrated impressive revenue growth, but it is not yet profitable. The company currently burns $101,823 every month. While the founder aims for profitability within two years, no competitors have achieved this yet. This opens the possibility of Neighborhood Sun being acquired, but profitability remains uncertain.

The competitive landscape poses another risk. Although described as "slightly competitive," notable competitors like Solstice, Nexamp, Arcadia, and Ampion could limit Neighborhood Sun's market share growth or pressure pricing strategies.

Sales and technology expenses make the company capital-intensive, requiring ongoing access to capital for growth and operational sustainability. This poses a risk if capital markets become less favorable or operational efficiencies are not achieved as planned.

Bullish Outlook

Neighborhood Sun presents a strong investment opportunity due to its growing market, fast-growing revenues, strong acquisition potential, and mission to mitigate climate change.

The Sun Engine platform positions Neighborhood Sun at the forefront of the renewable energy sector. By making solar power more accessible, customizable, and transparent, the company taps into the growing demand for clean, sustainable energy solutions, providing cheaper energy than the grid to its customers. It also offers better rates to small solar farms, enhancing its attractiveness.

The company's impressive progress since its last raise in 2022, managing 136 community solar farms across seven states and generating close to $4.9 million in revenue in 2023, indicates strong product-market fit and growing adoption of renewable energy solutions.

Bearish Outlook

Neighborhood Sun faces two significant risks that could hinder its progress if not managed properly.

The competitive landscape, with competitors like Solstice, Nexamp, Arcadia, and Ampion, could limit Neighborhood Sun's market share growth and pressure profit margins and market expansion efforts.

The company's impressive revenue growth contrasts with a substantial net loss of $1,622,860 at the most recent fiscal year-end. This discrepancy may raise concerns about the company's pathway to profitability, especially if expenses continue to outpace revenue growth.

Executive Summary

Neighborhood Sun, an innovative Energy-as-a-Service company, has shown remarkable progress in the community solar sector with its proprietary technology platform, Sun Engine. This platform has significantly contributed to the company's impressive revenue growth from $1.9 million in 2022 to $4.9 million in 2023, marking a 156.50% increase. Managing 136 community solar farms across seven states, Neighborhood Sun addresses the growing demand for affordable, renewable energy sources in the US.

The company's business model combines transactional and recurring revenue streams, capitalizing on the high market potential of solar power in the US. This potential is further supported by the rising demand for clean power generation and incentives for solar PV system installations through the Inflation Reduction Act.

Despite competition from entities like Solstice, Nexamp, and Ampion, Neighborhood Sun's unique value proposition lies in its advanced, customizable, and user-friendly technology platform, Sun Engine. This platform enhances productivity through automation fosters transparency, accessibility, and responsiveness, setting Neighborhood Sun apart from its competitors.

With a fair valuation of $25 million, Neighborhood Sun is raising funds on Wefunder to fuel its next growth phase. The company's strong growth trajectory, backed by institutional investors like TEDCO, ImpactAssets, and Chesapeake Bay Seed Capital Fund, suggests a compelling investment opportunity in the renewable energy sector.

Why We Invested

KingsCrowd Capital is attracted to Neighborhood Sun's high potential for acquisition, strong product-market fit, impressive traction, and favorable market dynamics.

Neighborhood Sun's product bypasses grid pricing and offers customers cheaper electricity rates and higher profits to solar energy farms. This positions solar as a viable alternative to fossil fuels from an environmental and financial perspective.

Despite being smaller than other firms in its industry, Neighborhood Sun's impressive revenue growth boosts confidence in its potential for a 5-10x valuation increase over the next five years.

The market dynamics make Neighborhood Sun an ideal acquisition target for larger competitors like Arcadia. As these companies seek profitability, acquiring smaller community solar startups to achieve economies of scale will be valuable. Thus, Neighborhood Sun has a high chance of becoming an acquisition target for larger community solar companies.