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Private-equity firm Warburg Pincus is leading a $220 million equity investment in energy-financing startup Solar Mosaic Inc., according to two people familiar with the situation.

The company, known as Mosaic, provides loans for solar installations for homeowners. It is starting to finance other energy-efficiency upgrades that are meant to reduce utility bills.

Mosaic is operating in the same sphere as SolarCity Corp., which Tesla Motors Inc. is acquiring for about $2.6 billion.

Warburg Pincus will have a slight majority control of Mosaic through its $200 million investment, one person said. Other investors in the round include financial technology venture firm Core Innovation Capital and Obvious Ventures, a firm, co-founded by Ev Williams, that seeks to invest in startups that offer a positive social impact. Andrew Beebe, managing director at Obvious Ventures, has had a long career in solar energy.

In the energy sector, Warburg Pincus has invested primarily in oil and gas companies. But it did back a solar-panel manufacturer, Suniva Corp., in 2009.

Oakland, Calif.-based Mosaic had started out by crowdfunding commercial solar projects. But it later pivoted to raising institutional funding for portfolios of residential solar lending.

Mosaic has said that it plans to originate about $1 billion in residential-solar loans in the coming 12 months. It secured $200 million in credit from DZ Bank as the lead lender earlier this year. NY Green Bank also participated.

The company's business model is built around allowing people to own their own solar systems. That contrasts against the predominant model of financing residential solar under lease programs in which homeowners rent the solar power their properties generate.

More homeowners are choosing to take out loans to pay for solar panels, rather than leasing them. Among the advantages of loans is that the borrower owns the solar panel at the end of the loan. Loans to own rather than lease likely will dominate the residential solar market in three to four years, according to PricewaterhouseCoopers.

Mosaic partners with solar-installation contractors who offer its loans as an option to homeowners interested in getting solar or other energy upgrades. It says it has developed a quick credit-assessment formula, taking a page from the playbook of online-lending startups.

Other publicly traded financing companies for solar include Vivint Solar Inc. and Sunrun Inc.

Privately held GreenSky LLC and Spruce Finance Inc., backed by Kleiner Perkins Caufield & Byers, also operate in the category.

The company's average loan is about $30,000, a much larger loan size than for consumer lenders such as Prosper Marketplace Inc. or LendingClub Corp.

Earlier Mosaic investors include Spring Ventures, Serious Change, Blue Haven Initiative and Bronze Investments.

Write to Yuliya Chernova at yuliya.chernova@wsj.com

(END) Dow Jones Newswires

August 04, 2016 17:55 ET (21:55 GMT)

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