Hohm Energy, a South African solar company that raised $8 million in a seed round earlier this year, has entered business rescue due to cash flow issues and debt servicing problems. The company has laid off an undisclosed number of employees and is currently not operational as it undergoes a three-month rescue process.

Financial Distress and Business Rescue

According to a report by TechCabal, Hohm Energy is facing financial distress just eight months after securing $8 million in funding. The company has entered business rescue, a process under South African law that helps financially distressed companies seek assistance. This process typically lasts three months, during which a business rescue practitioner investigates the company’s affairs, convenes a meeting of creditors, and advises on the company’s prospects.

Leadership Changes and Employee Layoffs

Franc Gray, CEO of Hohm’s parent company Spark Energy Services, confirmed that Hohm is currently not trading. The company’s CEO, Tim Ohlsen, left last week, and managing director Ryan Steytler took over the leadership. Steytler decided to put the business into business rescue, a move that Gray alleges was made unilaterally and against shareholder advice. The company has also laid off an undisclosed number of employees.

Background and Initial Success

Founded in 2021, Hohm Energy developed a solar marketplace that allowed customers to digitally determine their solar energy requirements and access loans for rooftop solar installation. The platform also enabled solar installers to design, manage, and finance projects. As South Africa’s load shedding worsened, renewable energy alternatives like Hohm saw increased demand. By February 2024, the company claimed to have generated over 17,000 custom solar rooftop designs worth $190 million and $90 million in financing applications.

Challenges and Governance Issues

Hohm Energy rapidly increased its headcount in anticipation of growing demand for solar, according to Bas Hochstenbach, managing partner of E4E Africa, one of Hohm’s investors. However, as grid electricity improved in South Africa, the company’s business started to show signs of strain. Gray noted that Hohm had a lot of sticky costs and could not restructure its cost base quickly enough as revenue tapered off due to slowing demand for solar.

The company also faced governance issues in its early days, which impacted the efficiency of its operating model. It only formed a board in early 2024 ahead of its seed round, according to an investor who asked not to be named. Gray claimed there could have been more transparent reporting of the company’s health by Hohm’s management, which would have enabled Spark to offer sufficient help.

Future Plans

Despite the current challenges, Spark Energy Services plans to invest more money in the business after the rescue process, but under a new business model and management team. The goal is to create the best outcome for all parties concerned in a situation that is not ideal, according to one investor.

Hohm Energy’s entry into business rescue highlights the challenges faced by startups in the renewable energy sector, even after securing significant funding. The company’s rapid expansion and governance issues, coupled with changes in market conditions, have led to its current financial distress. As it undergoes the rescue process, the future of Hohm Energy will depend on the effectiveness of the new business model and management team that Spark Energy Services plans to implement.