This article was originally published in Hebrew in Globes and was written by Shiri Haviv Waldhorn. The original pdf can be downloaded here. The following is a translation.
High-tech entrepreneur Zvi Alon was not planning on returning to the CEO seat, but a series of events that began with the installation of a solar system on the roof of his home in California, led him to the top at Tigo, which optimizes production of solar energy. The company recently hit Wall Street with a value of $600 million. In an interview with Globes he claims, “We are growing faster than the market and are capturing market share from SolarEdge,” and he promises, “Tigo is my last investment that requires help and not just money”
About 15 years ago, Zvi Alon, an Israeli entrepreneur who lives in California, finished building a house and installed a solar system on the roof. It was just around that time that he first met one of the founders of Tigo, which provides solutions for the solar industry, who is also Israeli. A few years later, they met again. “He said to me, ‘the market is really tough, the Chinese are entering, prices are dropping, it’s all terrible. You willing to invest?’ I told him that he’d just explained to me why it’s not a good idea,” said Alon in an interview with Globes.
And despite this, something evidently caught his attention, and he decided to conduct due diligence in advance of an investment in Tigo. “I invested effort, flew to Germany, met with the late Guy Sella (founder of SolarEdge, who was also involved in in the field, SHW), who also started out more or less at the same time. I came back and submitted an offer to lead the round of financing, signed a check - $5-5.5 million – and became Chairman of the Board.”
Tigo provides hardware and software that increase energy yield of solar systems, enhance their safety and reduce their cost of use. Additionally, it sells energy storage systems, a business it has recently entered. The company was founded in 2007 by Ron Hadar and Sam Arditi.
As sometimes happens with investments, the plan they had agreed on at the time of the investment did not pan out, and, in 2014, 2 older investors in Tigo – Clal Industries Group and UK company Generation – convinced Alon to take over as CEO.
This is not the first time that Alon, 72, an Israeli from Haifa and graduate of the Technion, is at the helm of a company. In the 1990s, he founded and managed software company NetManage, which traded on Wall Street and was sold in 2008 for close to $70 million. Within the company, he also founded internet provider Netvision (which was managed by his wife at the time, Ruth Alon), and he established the California Israel Chamber of Commerce.
When he started as CEO, Tigo was pushing in a direction which in retrospect proved to be less successful, when he signed a three-year contract with a large German company to invest in Tigo and distribute its products. “It never really accelerated – neither according to our expectations nor theirs. We decided not to extend the contract, and I bought back their share,” he said. “We spread the distribution to other channels, and since then the company’s been growing like gangbusters. Right now, the future looks very rosy.”
The SPAC market was cooling off
Two years ago, Alon decided to bring Tigo to the public market and almost signed with SPACs (companies with no activity that are issues absorb a private company within a specified period of time), but felt that something in the market was off.
Actually, after the SPAC market had cooled off significantly, last December Tigo signed a merger agreement with one of these companies, one that is related to Roth Capital Partners, at a $600 million pre-money valuation. The merger was completed this month, and as opposed to many companies that were merged into a SPAC, the price at which the company is trading today is higher that the price in the merger.
Why a SPAC?
“It’s no secret that the new IPO market isn’t exactly open today. The funding wasn’t what was so important to us, because we generate cash, but we wanted to go public. We’ve got nice growth, and our competitors are SolarEdge and Enphase, both publicly traded, with a strong balance sheet and lots of cash.
“When we go to potential customers, they always ask us: ‘We’re buying a product for 25 years, will you still be here?’ The exposure to the public gives us respectability. The second thing is that there are lists of big customers, who you’re ‘allowed’ to buy from, and it’s very hard to get on those lists when you’re not a public company.”
Alon added, “We examined the options, and it was clear that an IPO would be more difficult. We thought about a reverse takeover, with a shelf corporation or a company that was in trouble, but after doing research, we decided against that. In the end, we did something similar, but with SPAC, in a very special transaction that ‘cost’ us only 2% of our shares (which are held by the SPAC investors, SHW).”
According to him, the SPACs are currently facing a serious problem when it comes to finding good targets for mergers, while their deadline looms, and if they don’t merge, they’ll be forced to return the money to the investors.
“SPACs began looking for targets that were less optimal, with promise of growth in the future. In fact, they became a kind of venture capital funds. We are a profitable, growing company that is suitable for a merger, and the SPAC into which we merged has 4-5 months left until they would have had to close and lose the money, so they agreed to these terms after some negotiating. We’re all very happy.”
Weren’t you afraid of a negative response from the market, after so many companies that merged into SPACS had disappointed?
“The fear is there, obviously, but I know investors: they have short memories. They look at today and tomorrow – today is what’s really happening, and tomorrow is if they believe your story. And the better the results you deliver, the more they believe you.”
However, Alon is aware of the problem of relatively low trading volumes, because the floating shares (the number of shares that can be traded) is relatively low. The reason for this is that most SPAC investors withdrew the money they had invested in it when the SPAC announced an extension of the period for completion of the merger with TIgo.
According to him, the shareholders who remained are “good investors, most for the long term.” However, he is planning to do something special: another IPO; in other words, to soon perform a secondary issue, in which he will increase the number of shares and, by doing so increase the number of floating shares. “I don’t want to throw around names, but all the biggest banks want to work with us,” he said. “Everyone is impressed by the company’s performance, and there aren’t many issues.”
“We’d rather remain conservative, because it’s very easy to be sanctioned”
Tigo, as opposed to many companies that were merged into a SPAC, is a profitable company: in the first quarter of the year, for the first time, it posted net profit, not only based on EBITDA, but also according to generally accepted accounting practices (GAAP) - $6.9 million.
When it closed out 2022 with $81 million in revenues, it gave a revenue forecast of $139 million in 2023, but the pace of the revenues in the first quarter ($50.1 million) along with the forecast for the second quarter ($70-74 million) indicate that it will significantly exceed the forecast.
Did the market surprise you positively or were you simply very, very conservative in your forecast?
“We were conservative. We would rather be conservative, because being sanctioned is very easy, and to maintain momentum is difficult. I can also say that in the meantime, the market has been very good to us: we are growing much faster than the market and are capturing market share from both Enphase and SolarEdge.”
How do you explain that?
“The difference between us and them is that SolarEdge and Enphase are closed systems, you h2859*ave to buy all the parts from them. With us, all the systems can be sold with the systems and products of each of the competitors. We have over 50-60 converter suppliers that use our product to sell, and they increase sales for us.
“Even more interesting is that the architecture cost of our core system, MLPE, is half of SolarEdge’s, which enables us to sell at a lower price, along with better performance, which generates 1.5%-3.5% more energy, according to external reports.
“And something else the market likes about us is that Tigo has one product that’s sold for home, commercial or large installations and is suitable for any range of supply by the panels. Our competitors have different products for the home and commercial market, and distributors would rather not hold different products for different markets.”
How can your production cost be significantly lower than the competitors’, which are much larger?
“Simple math: the transistor is the most expensive electronic component in the system, and our architecture enables better performance with fewer components.”
What is the risk in competition by cheap Chinese manufacturers?
“The risk is there. The fact that there is currently something of a negative sentiment against China also helps, because it makes our life easier when competing. There’s something else that is less known that helps us. We sell the unit for approximately $30, about half of SolarEdge’s price, with very nice profit margins and a 25-year warranty. People sometimes don’t understand how hard it is to build a unit for less than $30 and give a warranty for years – you don’t want to see it anymore, because if you see it again, you’ve lost money. There were some who tried to enter the field and failed, because it requires a great deal of knowledge, beyond patents and other protection.”
Additionally, according to him, in recent years regulatory requirements regarding safety have been introduced – systems placed on roofs must be able to be turned off quickly so that in the event of a fire, they will stop generating energy within 30 seconds.
The company is managed in the US; is there also activity in Israel?
“We have a large and growing office in Ra’anana, with 34 employees, out a total of 205 throughout the company, and we are looking for more good people. We made an acquisition in Israel a few months ago, and we’re very pleased. In terms of investors from Israel, Clal Industries are the largest, and at least according to what the tell me – they’re happy. Avi Fischer was with us at the market open ceremony when we started trading.”
Do the founders still have shares?
“Yes. One still works for us. What is theirs is theirs – they established the company, and each made money from it.”
This is your second time as a CEO on Wall Street; what’s changed since NetManage?
“Today, there are many more partners involved in management of the company, because of all the regulation and requirements. It makes life a little more interesting and a little more complicated. I understand the reason and goal of protecting the shareholders, but I think they’ve gotten a little carried away – there are many more processes and procedures and a little less flexibility for management and entrepreneurs.
“In terms of what investors are looking for, that hasn’t changed, and the questions are the same questions – how much growth, what are the projections, the risk, ‘you’re small, how will you capture market share from the competition,’ etc. The distribution is also pretty similar. There are investors who like well-established companies with a lower return, and there are those who prefer investments with higher risk and greater growth.”
On a personal note, you’ve been managing Tigo for close to a decade; what are your plans?
“When I invested, having the title of CEO was not part of my plan. I was Chairman and ready to come in quarterly. Tigo, from my perspective, is my last investment that requires assistance and not just money. I don’t plan on taking on another one.
“At Tigo, I have an outstanding team, and looking forward in the long term, I want to get back to being an active chairman, but that won’t happen tomorrow. Like I’ve proven over and over, I’m a marathon runner, not a sprinter, not like the young people who start a company, make money and move on to the next in line. On the other hand, I’m also not young and don’t need it for the money. Up until now, I’ve donated more to charity than I’ll ever use.”
Zvi Alon’s investments: high-tech, real estate and even furniture
When Zvi Alon was asked about the trends he sees today in Israeli high-tech in view of the global slowdown in the industry and the concern regarding the advancement of the legal overhaul, he responded, “Israeli high-tech is no different than what is going on here (in the US). There have been many changes, many companies sent staff home. First of all, there was insane growth that got out of control, and the market grew weaker, forcing everyone to be more serious when looking at expenses. Even in the US it’s easier to get good people today – we doubled our number of employees within 7 months without any problem.
“Regarding legislation, I’m not sure that it’s directly related, because the decline in investments is significant worldwide, and the valuations of new companies have declined incredibly. It’s not that there’s no money, but investors are more responsible. I’m also an investor, and today it’s easier to get better deals than it was a few months ago. I don’t think that legislation had a major impact.
“On the other hand, I am indeed worried about the things that have broken and will never be the same,” he added. “It doesn’t matter at all what happens, when all kinds of lines are crossed, it’s tough not to cross them next time. And still, I think that infrastructure and high-tech in Israel are among the world’s finest, and it’s hard for me to see how they can ruin that; finally, investors want to make money, and entrepreneurs want their solutions to succeed, and they will go where there is an ecosystem that makes it possible for them to succeed. I see an excellent future in Israel, despite the chaos, I’m very optimistic that things will be okay in the end.
“There are very small elements to correct. Israel will not be a dictatorship. Jews don’t live well with dictatorships anywhere in the world.”
What can you tell us about your other investments through Alon Ventures?
“It’s quite diverse. 12-13 years ago, I stopped making early stage (young startups) investments, because it was too much work. We (through the venture capital fund he started, SHW) also invest in technology, but not only, and we are very selective. You really need to love it, and if there are returns, that’s nice of course.
We recently had a sweet exit with a company that would be defined today as AI, that is engaged in textual search for forensic purposes (criminal identification). There were pretty much pioneers in the field and have done very well. Another example, and you’ll think that we’re crazy, is a company that makes furniture for malls. They have unique capabilities and know-how. They were in a tough situation. We helped them stabilize, and there we also had a successful exit. We also have real estate investments.”
You mentioned donations you’ve made. Can you tell us about them?
“For example, in Israel there’s a building with my name at Ben-Gurion University in Be’er Sheva, the Alon Building for Advanced Technologies. For years, I also funded the California Israel Chamber of Commerce and a public diplomacy organization for Israel. Those are things for my soul, work that I pay to do.”
Shiri Haviv Waldhorn