SolarGaps is an incredibly complex project”: what’s going on with the startup
SolarGaps develops and markets solar-powered smart blinds that run on the energy they collect themselves. The project has become one of the most recognizable Ukrainian startups, won competitions for eco-friendly technologies, raised money on Kickstarter, attracted investments from prominent angels and investment firms.
In 2020, backers on Kickstarter started complaining about undelivered devices, and the media (with a dubious reputation) began to spread information that the project was on the verge of closing. All that contradicted the information provided by SolarGaps: hundreds of orders worth millions of dollars, a new factory, worldwide orders, laudatory articles in respected Ukrainian media.
The AIN.UA editors talked to the founder of SolarGaps, Yevgen Erik, other people familiar with the project and found out the situation at the startup.
One minute review
- SolarGaps is a well-known Ukrainian startup. At the end of 2020, messages began to appear on the Internet that things did not go well for the company.
- SolarGaps did have problems with the logistics of orders on Kickstarter, but now, according to the company itself, about 90% of the devices were delivered to backers.
- The startup announced the launch of an innovative factory in Romankiv but failed to launch it. The company has one factory in Bortnychi, which produces about 100 devices per month.
- The company also had funding issues due to the coronavirus, but it received another tranche under the Horizon 2020 program.
- In a nutshell: the company did have problems, but the peak has been passed.
Background
The news about SolarGaps and its smart blinds that generate solar energy broke out for the first time back in 2015. The idea of the project is to install solar blinds on windows, which, in addition to their usual function, will also generate about 100 kilowatts of energy per month for the owner.
In essence, these are solar panels in the form of blinds that are mounted on a window frame and tilt during the day to collect more energy and are controlled from a smartphone. The company said that the energy received could power up computers and other household electrical appliances. The prototype of the device was presented at iForum-2016, which was covered by the media (the editorial staff of AIN.UA also wrote a lot about it).
At first, the company grew off of the money of the founder, Yevgen Erik, who had previously worked in the real estate industry. Later SolarGaps began to attract third-party investments:
- In March 2016, it got itself into the IoT Hub accelerator. Its founder, Roman Kravchenko, invested in the project at no charge.
- In June 2016, Effective Investments invested in the project $200,000 in exchange for 20% (i.e., the startup’s valuation was $1 million).
- In May 2017, SolarGaps entered the Kickstarter, where it raised $102,000.
- In October 2017, the company received a non-refundable grant of 50,000 euros from the European Commission under the Horizon 2020 SME program. The company raised €50,000 from the EBRD in the same year through the Climate Innovation Vouchers Programme.
- In April 2019, SolarGaps received a €1 million non-refundable grant from the European Commission under the Horizon 2020 SME program (phase 2). The CIVITTA team acted as a consultant for Horizon 2020.
Kickstarter issues
In November 2020, information appeared on two sites at once (link 1, link 2) that the startup SolarGaps had deceived its investors. In each of the texts, the authors cite one source: numerous user complaints on Kickstarter that the device never reached them. From this, the authors concluded that the startup was done. None of the media outlets approached the company for comment.
There are indeed negative comments on Kickstarter, with users complaining that the blinds were never delivered. Why this happened – we will tell you a little later.
Sources in the market told AIN.UA editors that the articles could have been ordered by some of the ill-wishers of the startup (or, for example, by some of the investors due to a conflict with the founder), but we did not find evidence to support that. According to one version, the management of the startup was offered to pay money so that these articles would not appear, but this was not officially confirmed by the company.
Interestingly, a month before that, an article was published in the Ukrainian Forbes, which does not talk about the company’s problems, but its prospects – SolarGaps allegedly had orders worth $2 million. And on November 21, 2020, Ukrainer published a partner report with Greencubator about the SolarGaps factory, telling that the company is doing well, it is developing, and its devices are in demand all over the world.
What’s really going on with SolarGaps
The editor of AIN.UA met with Yevgen Erik and talked to other people familiar with the situation to figure out what was happening with the startup. In short, nothing wrong is going on, and the project continues to work. Not without difficulties, though.
Kickstarter
The company entered Kickstarter with smart blinds in May 2017. It raised $102,354 with $50,000 initially planned. At first, the company shared shipping news more or less regularly on Kickstarter. The last post appeared in August 2019, and updates have stopped since then. In the comments, outraged users who supported the campaign back in 2017 did not receive devices, did not get a refund, and doubted that the startup was still alive.
Such comments were cited as proof that the startup was actually “dead.” In December 2020, after the articles saw the light, the company wrote an update that they sent 20 more devices to users. And under that post, there were several comments from those who had not yet received the devices.
Why did it happen so?
According to one version, the reason is technological: the blinds were in development and were not entirely ready for use. A source familiar with the situation told AIN.UA that in 2019 the company was looking for investments, but one of the investors did not get a working device in a year. Some of the blinds “burned out” during installation, and other times they did not work because of a spare part. This data is confirmed by one of the company’s ex-employees: they say, earlier SolarGaps lost customers because it sent them samples that had glitches. According to the same source, this situation has now improved.
The founder of the company, Yevgen Erik, partly agrees with that: “At first, our product was really raw. And 110 volts in US power outlets turned out to be a challenge for us since at that time there were no certified motors and micro-inverters.” But according to him, already in 2019, the electronics in the blinds were redone entirely, and the product became suitable for mass production.
According to the second version, which is announced by the company (and which is confirmed by former employees), delays in deliveries were also caused by logistics issues. “There were problems: we wrote to backers, they did not reply for a long time, some were silent for as long as half a year. Or the device was shipped into the country, and the user refused to pay the customs clearance,” says one of the former employees of the company, who wished to remain anonymous.
It is confirmed by the head of the company Yevgen Erik. According to him, entering Kickstarter was initially a mistake, as was the focus on the B2C segment. The product is technologically complex, and some users failed to install the product properly, the formats of the sockets did not fit, there were malfunctions in the application. But in terms of a PR, going on Kickstarter worked well.
“The reality is often like this: if you make hardware, then what you spend on the product is 1.5 to 2 times more expensive than what you raise on Kickstarter,” he says.
As AIN.UA found out, the company had problems with delivery in some countries due to customs clearance rules: for example, users from Mexico complained about customs clearance price; in the UAE, the clearance cost was 100% of the product’s price.
According to Kickstarter rules, the startup was supposed to deliver the devices to the US for free, and each delivery cost $300. During the lockdown, the company sent delivery letters to backers, and many remained unanswered. Quarantine restrictions also complicated delivery in 2020. Nevertheless, according to Erik, the company completed 90% of deliveries to Kickstarter backers across the United States (as of the end of April 2021).
Investments and finance
According to Erik, the company entered the year 2019 actively. It had large ongoing B2B projects: the World Trade Center and the Port of Barcelona (at the time of publication, the blinds were already installed there), the Spanish network of nursing homes, B2B clients in Switzerland, an energy company in Germany.
In the same year, the company announced that it had received a €1 million grant from the Horizon 2020 program. The amount is paid in tranches, and the company was supposed to receive the next payment in the spring of 2020, but it was delayed until October due to the coronavirus.
“Until October, we were quite worn down, financially too. I invested my money and took out loans to save the company. We were forced to cut employees’ salaries by 50%,” says Erik (according to AIN.UA, some SolarGaps top managers refused salaries during that period altogether).
At the same time, negotiations on B2B projects were slow, and with the start of the lockdown, most of these projects froze: only one of them was worth 500,000 euros. The company counted on the money but did not receive it.
The situation improved in November when the company received the next grant tranche. Until the tranche, the company was kept afloat thanks to the funding from the Ukrainian Startup Fund ($50,000).
The company has not attracted venture capital lately. According to the founder, it was mainly because it is generally more difficult for a hardware startup to do this. He talked about how he traveled to Silicon Valley and talked there with investors who told him bluntly that hardware was not of interest at the time.
According to several sources of AIN.UA, it could also be due to the fact that one of SolarGaps’ early investors, Andrey Kolodiuk, has an undivided 10% share in the company (its American office), which scares off potential investors.
According to SolarGaps presentation materials for 2018, 88% of the Ukrainian legal entity Solargeps LLC belongs to Yevgen Erik, 7% to Roman Kravchenko, and 5% to Denis Krutko. In the American SolarGaps Ltd., 55.14% belongs to Yevgen Erik, and the rest is distributed between private investors and employees (this also includes the undivided share of early angels).
The company’s founder did not comment on the presence of an undivided share and difficulty in negotiations with investors. This is indirectly confirmed by the fact that, according to AIN.UA, until some point, the startup tried not to raise money since this would mean an increase in the mentioned share.
The Factory
Difficulties with investments affected the production of the company. The company has a working factory in Bortnychi. In July 2019, the company announced the launch of a new innovative factory in the village of Romankiv, near Kyiv.
In the articles of Forbes and Ukrainer, Yevgen Erik pointed out that this is a working factory, which carries out orders for international customers. “In July 2019, Erik opened a factory in the village of Romankiv near Kyiv, which employs five people, and they produce 200 devices per month. The factory has already been overwhelmed with orders worth $2 million,” the material says.
As it turned out, the information is not true.
That is how the factory looked in November 2020. Judging by a meter high grass, it is clear that there has been no activity for a long time.
The AIN.UA correspondent visited the factory in November 2020 to find out how things were at the time. From its appearance, it was clear that the building had long been abandoned. At the time of arrival, the person in charge of renting the premises was on the site. He was showing the building to potential tenants. The AIN.UA correspondent also introduced himself as an interested person looking for a spacious warehouse near Kyiv. The landlord agreed to give the entire building, except for a small room, for $2,500/month. That small room that was not available for rent was used to store SolarGaps equipment put into boxes.
The landlord confirmed that for some time there was a production facility of SolarGaps. Still, for almost the entire 2020, no activity took place, and the company owed several thousand dollars in rent.
There is no factory in Romankiv.
In a conversation with AIN.UA, Yevgen Erik said that the company indeed planned to build a “dream factory” there, but a month after it moved in there, the electricity was cut off in the building, and it is still not available there. Right in front of the editor of AIN.UA, Erik allegedly called the building owner, and he confirmed his words about problems with electricity. But this does not negate the fact that there is no production or factory in Romankiv, while the company tells the world otherwise.
Erik estimates the launch of such production at $2 million, but the startup still needs a second factory: according to the head, this will reduce the cost of blinds and make it possible to sell them to large B2B clients. Therefore, to create a factory, they plan to initiate a crowdfunding campaign and attract investors.
The factory in Bortnychi currently produces about 100 systems per month. SolarGaps has now reoriented itself to the B2B segment. At the same time, hotels, shopping centers, and other public facilities that might be interested in the technology are constrained by quarantine in many countries.
“We have done a great job, and this lockdown is like a blow to the head, from which it is difficult to recover,” says the head of the company.
The pandemic affected the company’s financial health and production: several critical employees for production contracted the coronavirus at various times. Several different sources confirmed this to AIN.UA, noting that the coronavirus gravely crippled the team and its founder.
What does SolarGaps plan to do?
In a conversation with AIN.UA, Yevgen Erik did not hide the fact that the SolarGaps project is incredibly complex. The company entered the B2B segment and made a mistake: installing such blinds is not the same as fixing two sensors on the wall with double-sided adhesive tape. Now SolarGaps is focused on b2b, where the projects are more extensive.
“We plan to supply the order to Tata Power in India, to the Goethe Institute in Belgium. We are thinking about three pilot projects in Europe and Ukraine, to make at least one of them a bright building with public access. The result will be a wow effect that everyone can feel,” says Yevgen Erik.
According to Erik, after the tranche in October, SolarGaps the company has sufficient resources for the year ahead, together with further funds in the region of €150,000-200,000 to finance a pilot project in Europe – installing blinds in some prominent building, which could then be shown to clients as an example of working technology. Currently, the company is negotiating with India’s Tata Power, which plans to install blinds on a building in Mumbai.
“My goal is to build a company like Sonnen, which produces energy storage batteries for homes in Germany. It is an example to me of what a startup in the energy industry should be,” says the company’s founder.
SolarGaps is also thinking about launching a factory in Poland. To finance this project, the company has applied for a Polish grant and is also looking for partners; for example, it discussed the launch of a joint factory with Daniel Tonkopiy from Delfast (Tonkopiy confirmed this information to AIN.UA).
The founder of SolarGaps says that while studying at Singularity University, he met Drew Baglino, Tesla’s technical director, and he liked the company’s product. “He was interested in SolarGaps and we discussed the possibility of using Tesla Powerwall batteries to store generated energy,” he said. The SolarGaps founder writes Baglino from time to time, but the letters remain unanswered.
According to Erik, selling the product to Tesla would be the perfect exit for the company. But Tesla doesn’t acquire startups right now. Erik himself continues to work on SolarGaps; the company doesn’t shut down.