Solar panel maker Solyndra today said that it will file for Chapter 11 bankruptcy protection, after failing to successfully compete against lower-cost Chinese manufacturers. It is one of largest failures ever suffered by venture capitalists, and a major black eye for a U.S. Department of Energy that loaned the company more than $500 million.

The company has not yet filed its bankruptcy papers, but did say in a press release that it plans to evaluate options that could include a sale of its business and licensing of its technology. It also said that 1,100 full-time and part-time employees will be laid off, effective immediately.

Since being founded in 2005 to build solar panels for commercial rooftops, Solyndra had raised nearly $1 billion in private equity financing. The biggest backer was the George Kaiser Family Foundation, which was listed as holding more than a 35% equity stake when Solyndra filed for a $300 million IPO in late 2009 (it would later cancel the offering, due to “adverse market conditions). Other significant shareholders included Madrone Partners, a VC firm affiliated with Wal-Mart’s Walton family, with an 11% stake, U.S. Venture Partners (10.19%), RockPort Capital Partners (7.5%),  CMEA Ventures (6.81%), Redpoint Ventures (5.94%) and Virgin Green Fund.

Some of those positions were subsequently diluted, when a new debt financing this past spring reportedly converted certain existing shares from preferred into common.

Solyndra’s $535 million loan guarantee was made in 2009 by the Department of Energy, and has since come under scrutiny by House Republicans who have suggested that not enough due diligence was conducted. DoE already is pushing back against the meme today, with a blog post that argues the company was felled, in part, by slashed European subsidies for solar cells (an argument Solyndra CEO Brian Harrison also makes in the company’s press release).

What DoE does not discuss, however, is that Solyndra’s products were far more expensive than the typical solar maker — offering a long-term value proposition with high up-front costs. “Solyndra really bet on changing how solar is installed,” says Rob Day, a cleantech venture capitalist and blogger. “It was an interesting idea that just didn’t work out.”

A source tells Fortune that Solyndra has called down $527 million of the DoE loan guarantee, after meeting a variety of performance and financing milestones (including the building of a manufacturing facility). The final check arrived earlier this summer.

DoE’s loan guarantee was “secured by a first priority security interest,” which would seem to imply that DoE is high on the list of creditors (we’ll know for sure when the bankruptcy doc is filed next week). The VCs, on the other hand, may well be washed out (particularly those holding common stock).

[Update: A source says that the $75 million debt that Solyndra raised earlier this year would be repaid before repaying DoE]

DoE declined to comment beyond its blog post. Solyndra and its VCs have not yet responded to Fortune’s calls.

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• Also at Fortune: What went wrong at Solyndra