New state plan pairs loans and utility bills

Homeowners will soon have the option to repay energy-related home improvement loans of up to $25,000 on their monthly utility bills.
Gov. Andrew Cuomo touted the new service last week in his State of the State address as a convenience that is expected to spur interest in state-sponsored energy-efficiency programs.
Customers who borrow to pay for insulation, air sealing, high-efficiency furnaces or other approved items can use so-called “on-bill financing” to pay back the loan as part of their monthly utility bill.
Besides convenience, the new option may offer lower costs when it becomes available Jan. 30.
The fixed interest rate for on-bill financing will be 3 percent, said Dayle Zatlin, speaking for the New York State Energy Research and Development Authority, which operates the revolving loan fund.
That’s 25 percent lower than the 4 percent NYSERDA charges for traditional loans through its Home Performance with Energy Star program, and 14 percent less than the 3.5 percent interest rate for customers who arrange for automatic bill payment.
Because the loan installments are included on the utility bill — and carry the same penalties for nonpayment, including service termination — the on-bill loans are considered less risky, said Zatlin, of NYSERDA.
“We anticipate the financial markets will provide the funds to NYSERDA at a lower interest rate because of the added assurance of repayment,” she said.
Buyers must sign a mortgage to get on-bill financing, which means interest payments may be tax deductible, NYSERDA officials said. They advise borrowers to consult with a tax professional.
The NYSERDA mortgage is subordinate to other home mortgages and cannot be used to foreclose on the property, Zatlin said. But the mortgage ensures that any purchaser of the property is informed of the debt, which will remain on the home’s utility bill if the property changes hands before the balance is paid off, she said.
The loans are typically repaid over five to 15 years, Zatlin said.
State regulators have been working with utilities to implement on-bill financing by next June. Cuomo said Wednesday that he pushed up the schedule to make it available this month. The service will be available to residential customers by Jan. 30, and to business customers within the next few months, Zatlin said.
To qualify for a loan, a homeowner must participate in NYSERDA’s Home Performance with Energy Star program. The first step is to contact a certified contractor, who will assess the home’s energy performance and recommend improvements.
NYSERDA uses a loan servicing company, Energy Finance Solutions, to process the loans. Customers pay EFS a processing fee of $150. NYSERDA also pays EFS $175 per loan.
NYSERDA uses part of the money collected from interest payments to reimburse utilities for their costs to provide billing. Utilities get $100 per loan, plus 1 percent of each loan’s value.
The state will limit the availability of on-bill financing for the time being, until its effectiveness can be assessed, Zatlin said. For the Upstate territory of National Grid, the option will be limited to 6,665 residential customers, she said.
To learn moreMore information about NYSERDA’s residential energy-efficiency programs and links to loan applications are available at nyserda.ny.gov/residential or by calling 877-697-6278.
Contact Tim Knauss at tknauss@syracuse.com or 470-3023.

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Putting a Value on Your Startup

In 2011, we saw a variety of young companies join the billion-dollar valuation club. These included Airbnb, Dropbox, Square, Spotify and Gilt Groupe. In fact, the rounds of financing have looked like IPOs, with amounts exceeding $100 million.
We also saw a group of hot companies hit the IPO market, such as LinkedIn (NYSE:LNKD), Pandora (NYSE:P), Zynga (NYSE:ZNGA), Groupon (Nasdaq:GRPN) and Zillow (Nasdaq:Z). They currently have a combined market value of more than $32 billion (for a closer look at Social IPOs in 2011, check out my recent post.)
Keep in mind that these companies are generating revenues — and in some cases, even profits! As a result, it is easier to use traditional approaches to come up with valuations.
But what should be done with a pre-revenue startup? In this situation, there are some ways to get a sense of the valuation:
Amounts: For a Series A round, a typical amount is $3 million to $5 million. So given that a venture capitalist often will take a minority position, the valuation of a company usually will be in excess of $10 million.
The Lingo: VCs have a certain vocabulary, and it can have a big impact on your valuation. First of all, you need to understand the concepts of “premoney” and “postmoney.” Premoney is the valuation before the investment is made, and postmoney is the sum of the premoney valuation and the investment.
Example: Let’s say a VC is willing to invest $4 million in your company at a valuation of $10 million. In most cases, he or she means that valuation is on a postmoney basis, giving the firm an equity stake of 40%. However, if the $10 million valuation is considered premoney, then the stake would be 28% ($4 million divided by $14 million).
You also should account for the option pool. This is the percentage of the outstanding shares available for option grants to employees. For early-stage companies, the option pool can range from 10% to 20%. When the VC negotiates the valuation, he or she will apply the option pool on the premoney valuation. Ultimately, this lessens the value of your equity position.
Timing: If your space is red-hot and you have multiple VCs interested in your deal, you should raise as much money as possible — and negotiate as hard as possible. Bidding wars are a common theme in the startup game, but they can fizzle out quickly (just look at prior trends like podcasting and RSS).
Proof Points: Measure key metrics continuously and set goals, say on a weekly and monthly basis. If you can show that your startup is making consistent progress, you’ll likely get VCs’ attention.
You also should try to highlight your progress against competitors. Are you becoming the dominant player in the space? If so, the valuation should spike. Consider that tech often is a winner-take-all kind of business.
Team Value: If you have rock star executives and engineers, they actually might have independent value. In some cases, a brilliant engineer can fetch more than $1 million. Companies like Facebook and Google (Nasdaq:GOOG) often acquire companies for their talent, not their products or customers.
Valuation Time Bombs: Even if you get a sky-high valuation, it might be worthless. How? VCs usually will require liquidation preferences. This means a firm will get back all — or even more — of its initial investment if the company is sold or liquidated. In other words, if the valuation of the “exit” is less than the investment amount, your take will be zilch.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook,” “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli
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