SolarAttic Inc.'s efforts to find conventional funding haven't paid off. So the company has become a pioneer, joining the first wave of company builders to seek investors on the Internet.
Ed Palmer might not think of himself as a pioneer. But he's among the first wave of company builders to look for investors on the Internet without a middleman
Ed Palmer is at his desk, bracketed by two Macs, poring over the number of hits received by the various components of his business's Web site. The company's only other full-time employee is a cubicle away, dashing off a string of E-mail notes from his computer. This could be almost any Web start-up, if it weren't for the company's only other room--a storage room across the hall--one that should be filled with humming servers and blinking modems. Instead, the room turns out to be littered with crates, pallets, and ungainly mechanical devices--an inventory of actual things.
Palmer's company, SolarAttic Inc., is not a flash-fire Silicon Valley Web start-up but a conventional small company in a Minneapolis suburb that has been engaged in a gritty, 13-year struggle to score with products that could at best be called medium-tech. What especially distinguishes SolarAttic from the typical Internet business is that despite the fact that sales have been taking off, venture capitalists, angels, and other investors have not been lining up to hurl money at the company to propel it into the next stage. As a result, Palmer has modified SolarAttic's growth strategy to include an on-line wrinkle so cutting edge that few Web businesses have dared to try it. Namely, the company is trying to go public by finding its own $1,000-here, $500-there investors over the Internet. No investment banks, no brokers.
The realization of ultra-low-cost, wide-open stock offerings--a pure, frictionless transfer of money from the public to a company--may ultimately become one of the most powerful applications of the Internet. It's turbocapitalism: for ordinary investors, a chance to get in on the ground floor of even tiny, distant, or obscure companies; for underfunded, non-Web start-ups, an opportunity to get their story out to people who might be willing to take a modest gamble.
Dozens of companies have already altered the conventional model of fund-raising to take advantage of the Internet's reach and efficiency. But surprisingly few companies have tried to go all the way and strip their efforts down to a simple on-line proposition: send me money and I'll give you a piece of my company. SolarAttic, as unlikely a high-tech pioneer as it may be, is one of them. The results have not been entirely pretty. Despite garnering a small sea of leads, the flow of actual on-line investment in the company has barely reached the level of a trickle. Among the challenges the company continues to face: getting the right people to its site, differentiating its offer from those of con artists, and slogging through a morass of state regulations.
But SolarAttic is forging ahead, learning what works and what doesn't as it goes along. As the company embarks on its third public offering--the second that is based on the Web--Palmer offers a simple explanation for why he keeps at it: he is convinced, as are many others, that this is just too good an idea to ultimately not work.
Anyone who has ever climbed into an attic on a sunny day can appreciate the basic idea behind SolarAttic. Heat gets trapped up there. Why not put it to work?
Palmer, for one, cannot abide the fact that energy is literally floating around the tops of homes while their owners pay good money for heat in other forms. Call it an engineer's disdain for the inefficient. Palmer worked on guided-missile-system computers for the navy and later on civilian computers, before a friend's offhand remark 16 years ago changed his life. The English, said the friend, often keep their water heaters in their attics not only for the pressure gain that gravity provides but also for the free temperature boost.
Never mind that the English also eat meat in pies and beat one another up at sports events. Free energy was a good thing, Palmer declared, and worth following up on. Two years later, with salaried life permanently behind him, Palmer began his attic-heat-tapping experiments--ultimately taking over nearly two-thirds of the floor space in his Elk River, Minn., home, including the entire basement and garage. The goal: to figure out a way to transfer the heat to piped-in water that could then be pushed into a swimming pool. Since he didn't own a pool, he set up a 125-gallon horse trough in the garage; to compensate for Minnesota's frequent dearth of sunlight, he set up electric heaters in the attic to provide heat that he could then get rid of. His efforts fell short until he hit on the missing ingredient: a fan to blow the hot attic air over his boxed-in network of thin piping.
Unfortunately, having a good product concept and moving a good product are two different things. At the rate Palmer was going, he had already run through his savings; he and his wife were living on $12,000 a year, mostly borrowed, and his wife was doing all their home maintenance and repair work. He went to a venture capitalist and was told to come back after he sold the first 100 systems. He went looking for angels but found himself in a geographical bind: investors based in mostly chilly Minnesota couldn't relate to the pool market in general and to a solar-dependent product in particular; investors in warmer climes were not interested in a company that was so far away. He kept plugging away. "If you lose faith, that's when things start to unfold on you," he says. Finally, in 1986, Palmer wrote up a list of just about everyone he had ever known and sent roughly 700 of them a letter asking them to invest, valuing the company at $1 million. He was even willing to trade away majority ownership of the company if he could raise that much, since he figured he could exercise effective control with a concentrated 20% of the stock. In any case he raised a nonthreatening but badly needed $50,000.
Palmer's first sale wouldn't come for three more years. In 1989 he finally sold a pool heater--to a reseller in Florida--for $1,600. And the feedback from that first sale was extremely promising. After performing a test, the customer reported that his pool's water temperature had risen by 20 degrees to 98 degrees Fahrenheit. Even better, as the temperature in the pool went up, the customer's energy costs to heat the pool went down. Typically, pool owners have reported costs as high as $300 per month to heat their swimming pools. By contrast, Palmer's heater costs about $11 a month to operate, treating pool owners to a "warm pool without hot bills," as Palmer puts it.
