Click here to read about UCAN’s efforts to help provide emergency bridge financing for Proterra.
By Dick Hughes
AUGUST 11, 2011 10:34 a.m
With Proterra out of cash to pay workers building battery-powered buses, a group of Greenville residents quietly raised the money to keep the company alive when no one else could or would.
They acted to keep Proterra viable not only for its jobs but also for its potential to attract a cluster of green energy transportation research and development to Upstate.
It is the untold story of how local investors gave Proterra a lifeline when its funding was lost and its credibility at risk, however innocently, with a federal fraud indictment of its main investor, a man no one here had ever met.
It was also a demonstration of how close relationships among Greenvillians could quickly create a network of individuals and a prestigious state investment firm to assist a new company with no close ties here but with great promise in sustainable energy transportation.
Proterra was on the verge of bankruptcy and had nowhere to turn when it made a panicky request to local people for enough money to stay alive until it secured a $30-million investment from Kleiner Perkins Caufield & Byers, a highly regarded Silicon Valley green technology venture capital firm.
“Greenville business and community leaders understood the significance of helping to ensure Proterra’s success and rallied to support them based upon Greenville’s commitment to economic development for the Upstate,” said Rick Davis, managing shareholder of Elliott Davis, who acted on his own and not as an Elliott Davis officer.
Angels to the Rescue
Davis and Matt Dunbar, managing director of Upstate Carolina Angel Network, brought together 13 individuals who collectively contributed $250,000 “with no real expectations that they would end up with equity ownership or that they necessarily would even get their money back,” said Davis. They were prepared to put in $500,000 more if necessary.
Tim Reed, an Angel Network co-founder, brought SCRA, the statewide investors in technology, to the table, and SCRA came through with a separate loan of $250,000.
Without that money, said Marc Gottschalk, Proterra’s general counsel and director of business development, Proterra would not have made it to closing on the promised $30 million from Kleiner Perkins.
“Kleiner Perkins still needed quite a bit of time to complete their due diligence, and our existing investment pool at that point was essentially exhausted,” he said. “This last piece that came in from Greenville completed the puzzle to get to closing.”
Gottschalk said Proterra, which came to Greenville 18 months ago after a nationwide site search, probably would not have had that kind of response any place else.
“The fact of the matter is being in Greenville is a lot like being adopted into a family.”
Innocently Snared In a Ponzi
Proterra was running out of money in the last months of 2010 as it waited for $8 million from its main source of funding, MK Energy and Infrastructure of Stamford, Conn. The company had already invested $20.4 million in Proterra.
Proterra had slowed or stopped payments to suppliers.
Then in January, Francisco Illarramendi was indicted on charges of defrauding hundreds of millions of dollars from pension funds of Petroleos de Venezuela, the state-run oil company. Unbeknownst to Proterra, those ill-gotten gains funded the $20.4 million investment. Illarramendi pled guilty and awaits sentencing.
Running on Fumes
“MK kept putting it off and putting it off, and it dragged into January,” said Gottschalk. “We were supposed to be receiving our capital the week of January 17 when on January 14 the Securities and Exchange Commission filed its lawsuit against MK, and all of the MK assets were frozen. At that point, we were on fumes.”
Not only were the MK assets frozen, which included Proterra because it was part-owned by MK, the court receiver wanted MK’s $20 million back to return to the swindled Venezuelan pension funds. By that time, the money was spent. For all practical purposes, Proterra was broke.
The court allowed Proterra to use money or raise money for payroll but nothing else, and Gottschalk had to fly from his home in California to Hartford, Conn., several times in January and February to get court permission to spend what money Proterra had.
“They wanted to make sure people got paid, but unfortunately our suppliers were not on that list , and accounts payable kept piling up,” said Gottschalk.
Firestorm in Venezuela
Things got worse. To tide Proterra over, MK’s investors agreed to loan Proterra $5 million from “hundreds of millions of dollars” believed to be in MK accounts in Venezuela, but on the day “the funding was supposed to happen, we were informed that they were not going to allow it to happen,” Gottschalk said.
“There was a huge political firestorm in Venezuela. Not only were people upset that the pension fund had been misused but also there was the revelation that the paperwork shown by MK showing existing assets in Venezuela were fraudulent, (and) there really wasn’t much of anything.”
While the news about Illarramendi’s fraud broke early in South America, the news media in the Upstate was slow to catch on to the mess Proterra found itself in, and Proterra was hoping the lid stayed on until after Secretary of Transportation Ray LaHood’s Jan. 27 visit to Proterra’s Greenville assembly plant.
It did, and LaHood gave Proterra’s battery-powered buses a ringing endorsement for public transit agencies as the only bus that meets federal standards for grants covering 80 percent of the cost of purchase.
Katherine Smoak Davis of Smoak Public Relations, who had been hired last year to handle local public relations, said there was relief “that they had the secretary of transportation’s visit with a smiling face, if you will.”
Reaching Out for Help
But there were no smiling faces about Proterra’s increasingly dire financial condition, and the company hired South Carolina lawyers to prepare bankruptcy papers. “At a couple of different points, we were within hours of filing for bankruptcy,” Gottschalk said.
Around that time, Gottschalk and Jeff Granato, the president, asked Smoak Davis to introduce them to people who might be willing to make bridge loans. With their permission, she sat her husband Rick Davis on a stool at their kitchen island and briefed him on the company’s financial straits.
Over the next 60 days, Davis and Dunbar brought Granato and Gottschalk together with potential investors “to let them tell their story, what their need was, where they were going and how that would transpire to the long-term good of Greenville.”
Time was running out, while Proterra had a firm commitment from Kleiner Perkins, it was unlikely the deal could close until mid-June, and it soon would be unable to meet its bi-weekly payroll of $250,000 for 80 workers in Greenville and five at the headquarters in Golden, Colo.
Reed recalls being asked on a Friday to “write checks on the following Monday. But nobody really knew the terms of the deal so that was a pretty bold call, so we asked that it could be extended for additional days so the local folks could do their review.”
Dealing with the Here and Now
Lewis Smoak, Katherine’s father and a founding partner of the law firm Ogletree, Deakins, Nash, Smoak & Stewart, said Proterra came up at a meeting of active and retired executives who informally “put their automotive connections into play to get the Upstate in the running for an additional automotive facility” beyond BMW.
“We said ‘Why don’t we work on this automotive company that is right here now and has the potential of 1,200 jobs in Greenville? Why don’t we help them out?’ That’s how we got involved.”
Among others who chipped in were Dennis Braasch, director of Braasch Building Group, and Craig Brown, co-owner and president of Greenville Drive.
Brown, who came to Greenville six years ago to start the Drive baseball team, said contributing was “my chance to return the welcome and support we received as newcomers to the community.”
In a practical sense, he said, supporting Proterra fits perfectly with Greenville’s mission to attract technically advanced companies offering well-paid jobs.
The loans from the Greenville 13, which were bundled into a single entity, and SCRA gave Proterra enough money to make it to the closing in mid-June of the $30-million equity investment by a syndicate led by Kleiner Perkins.
It includes $6 million from General Motors’ venture firm, giving the automaker its first ownership stake in zero-emission electric buses for mass transit.
The bridge loans were converted to equity, so the local investors and SCRA now have an ownership stake, however small.
Reed said local investors came through in support of “game-changing technology that someday will not only benefit our local area but municipalities all over the country,” and he marveled at the irony of Greenville’s small investors keeping Proterra alive long enough to receive $30 million.
“It is one of those stories that is hard to believe – that they got this close to collapsing for lack of an investment that percentagewise was not much of an additional investment, but it came so close to not coming to fruition. That was what was really scary.”