Crop of Recent Cleantech IPOs Are Not the Upside of Sector

by: Greentech Media
As an active investor in the cleantech market, I'm definitely hoping we can start to see some successful exits. I, like others, am pining for a few successful IPOs with stellar returns that can be good beacons of hope for the rest of the sector's bets.
When there were practically zero venture-backed IPOs across all sectors, you knew there was a backlog of cleantech companies that were lining up to IPO and couldn't. Of course, now that the IPO window is re-opened slightly, it's not surprising to see venture-backed cleantech startups jumping in and filing to go public. But why are THESE the ones that are doing so? A123 (AONE), Codexis (NASDAQ:CDXS), Tesla (NASDAQ:TSLA), Amyris (NASDAQ:AMRS), PetroAlgae (PALG), Gevo (NASDAQ:GEVO)... Several with no or little revenue, really looking to 2012 or beyond for their significant revenue growth. Not all bad companies, that's certainly not my point, some on this list may end up being very successful. But certainly not the exact same short list one would have come up with a year ago when guessing which companies would be READY (note: not WANTING) to IPO as soon as the IPO window reopened. And certainly a couple of stories with some real hair on them. So why these companies?
I'm increasingly believing that these companies aren't IPOing as a result of the same reasons dotcom startups were IPOing in 1999. It's not that there's overexuberance, and investors and management are eager to put companies out into the market too early simply because they know they can get great returns from an overly optimistic stock market eager to get a piece of the Next Big Thing. No, these companies are IPOing because they pretty much have to. The current investors are fatigued, new venture funders are hard to find, the companies are burning cash very quickly, and with the IPO window open, getting another venture financing round from the stock market seems the best solution. Even if the IPO isn't primed to "pop" and be a great IPO story.
And in some cases, when you dive into the details of the S-1, you see that the existing funders have put the company in a position where it's IPO or else... These companies are also seeing their competitors file for IPOs, and they know that as a result, these competitors are about to have good access to capital to go out and start the inevitable consolidation trend as the shakeouts continue in these sectors... So they want to also be among the acquirers, but are too low on cash, and so need to be able to tap into the public markets.
Additionally, these companies are still struggling with that same old classic cleantech problem: The first commercial-scale project. For many biofuels, solar, battery and vehicle companies (ie: where VCs have mostly been placing their cleantech bets), no matter how capital-efficiently (or not) they try to get the company to be ready for commercialization, at some point they need to build out a large production plant, and project financiers won't do it for an unproven technology. So these VCs have turned to (in order, as the options have dried up over time) other VCs, then hedge funds and "special" funds, then the government, then corporate JV partners, and now to public shareholders, to supply the tens if not hundreds of millions of dollars necessary to build these first-time production plants.
So to paraphrase Obi-Wan, "These are not the IPOs you're looking for"... This crop of cleantech IPOs doesn't represent the upside of the sector. I don't believe that the VCs are expecting that after taking into account this market and their 6-month lockup, an IPO today is their way to a massive IPO exit story. Unfortunately, this wave of such IPOs hides the fact that there are many other cleantech startups that are now generating revenue, are profitable or within sight of it, and are seeing good signs of rapid market adoption. These are the companies that will eventually be the ones with the great IPO stories... but they're taking the "let's wait until we're clearly ready and the market's clearly ready" approach.
It's almost a perverse selection bias -- many of the best IPO candidates are waiting for better market conditions so they get the best exit, leaving companies that are worried about falling behind or falling out to slip out the IPO window while they can... I just hope in the meantime, these early IPO stories don't muddy the water too much for the sector.
Disclosure: While I don't have any direct exposure to any of the aforementioned companies, it's worth noting that I have indirect exposure to some of them.