By Rob Day
Almost a year ago, I wrote about several cleantech IPOs that were taking place at that time, in somewhat skeptical terms. And I wasn't alone. With the renewed, recent spate of cleantech IPOs and filings [Kior (KIOR), Luca, et al], I looked back on that same column and thought it was worth bringing up and discussing again.
How are those IPOs from back then doing now? A123 (AONE) is trading way down, Codexis (CDXS) is down significantly, Tesla (TSLA) is a little bit up, Amyris (AMRS) is quite a bit up, PetroAlgae (PALG.PK) is a pink sheet, and Gevo (GEVO) lowered their offering price but has been fairly flat since the IPO. So it's a mixed bag, not a resounding set of successes from which to draw inspiration. And yet, here it is summer again and we're seeing another wave of cleantech IPOs.
So is anything different? Actually, I think so -- and in a somewhat positive way. Last summer I wrote that those IPOs were basically happening out of necessity: the funders of those companies had backed them with certain exit timing expectations, the 2009 IPO window had been slammed shut, the companies were running out of money and so those companies were pushed through whatever tiny IPO window opened back up, ready or not.
What's not different now is that many of this summer's cleantech IPOs are similarly more akin to funding events than to liquidity events. Companies like Kior and Luca are looking to Wall Street to provide growth and early-on project financing. And why not? VCs and PE firms aren't lining up to provide "first project" capital anymore, so biofuels and other capital-intensive companies have been looking to corporate balance sheets for that capital, but that often requires giving up a lot of value to the corporate partners. On the other hand, Wall Street seems willing to more cheaply provide the "first project" capital for many of these companies -- at least for now.
And that's one thing that's different: that this is an accepted funding path. One lesson VCs appear to have learned from cleantech IPOs over the past couple of years is that companies that have a) commercially-viable byproducts, b) a long-term story to tell around attractive primary products, and c) brand-name venture backers can indeed ask Wall Street to pay for their first commercial-scale production facility. So that's what several of these companies appear to be trying to do. It also certainly doesn't hurt that oil prices are high right now, and many of these companies are directly replacing oil.
And the other thing that's different is that there appears (at least subjectively, to me) to be a difference in terms of the quality of the companies (overall) that are IPOing this year. These are companies with better stories to tell Wall Street in terms of longer-term prospects and value proposition. And in several cases, they have recently raised a new financing round, rather than being low on cash. I'm guessing that's because some of the sense of 'IPO or bust' isn't in place for this year's crop, and that these companies are filing for IPOs more opportunistically than at the point of a bayonet. While several of these filings similarly appear to be too early to IPO, perhaps if you view them instead as a public funding event, you can still feel good about the long-term growth prospects for the company.
I expect I'll get angry comments from both sides for making these observations -- from skeptics for daring to suggest that some of these companies have good prospects, and from proponents who'll feel I'm still not giving these companies their due as the next Google. They're probably both right, somehow.
But either way, one thing that's the same as last year is that the IPO window is officially, if slightly, open. And so it's "Everyone out of the pool!" time. I worry that in the mad rush to IPO, quality control is going to slip, and may have already. And that would once again muddy up the pool for everyone left still swimming: privately held firms awaiting their exit opportunity.