The stock market’s ongoing sell-off has many people wondering whether the wave of tech company initial public offerings will soon sputter to a stop. But some financial industry experts say the current market volatility does not necessarily mean that the IPO window is closed.
Last week’s launch of Silver Spring Networks’ long-awaited IPO is a big deal for the smart-grid industry. The company’s early public performance could be considered a gauge of the sector’s health as it emerges from a stimulus-backed growth spurt into an uncertain future. And in the longer run, Silver Spring’s success or failure will be closely tied to its plans to build a smart-grid application-delivery platform from its smart-meter networking base — a challenge many utilities face in integrating smart-meter deployments into their smart-grid offerings.
The company, whose networking technology is inside 8 million deployed connected devices and another 9 million under contract, has benefited from the $4 billion U.S. federal smart-grid stimulus. Its S-1 reports $422.2 million in deferred revenues, compared with 2010 revenues of $70.22 million, with much future revenue tied up in stimulus-funded projects. But that stimulus is coming to an end, and last week’s federal action plan on demand response (PDF) said the industry shouldn’t expect any more federal funds beyond existing stimuli. Likewise, the Obama administration’s smart-grid initiative, launched last month, contained little new funding beyond $250 million for rural grid projects.
For Silver Spring, that means new growth must come either from outside the U.S. — something that has begun to happen in Australia and that could happen in markets such as South America — or by adding new businesses to its existing smart-metering deployments. How to tackle that challenge is an important question, not just for Silver Spring but also for competing startups such as Trilliant, SmartSynch, Tantalus and Tropos Networks, not to mention giants like Itron and Landis+Gyr.
Home energy management could be one route. Silver Spring has home-energy and demand-response platforms, and pilots show that it works to drive down energy use. But home energy management remains a very uncertain market, as the withdrawal of Google and Microsoft from the field indicates. A June survey by Black & Veatch (PDF) found lack of customer engagement the biggest barrier to utilities’ justifying investments in customer-facing smart-grid deployments. Silver Spring might have to wait awhile for its utility partners to start spending on home energy management. Even then, utilities may choose another HEM provider to run over Silver Spring’s networks.
Silver Spring could also tackle the utility side of the smart grid. Corporate smart-grid M&A activity has been booming, and most of it has been aimed at utility-centric software and hardware systems. Silver Spring has distribution grid systems, and it is testing them with utility AEP in Ohio. But it will be competing against some huge multinationals like ABB, GE, Siemens and Alstom for that business.
In the long run, Silver Spring wants to build a host of applications — plug-in car management, demand-response controls and the like — on the foundation of its smart-grid networking platform. Whether utilities will choose Silver Spring’s in-house systems or pick other companies in those fields to run over Silver Spring’s networks may decide whether the company’s growth potential is limited to making smart-meter networking cards or whether it will expand to become a services provider for the grid — a move it will want to make to take part in the broader transformation of power grids to come.
In an interesting way, U.S. utilities at large face a similar challenge. They invested at least $2 billion last year into more than 12.8 million smart-meter deployments and are expected to invest a little bit more this year and next. This investment is with the promise of using the smart meters not just as digital cash registers but also as grid-management devices and gateways to new forms of customer interaction. Maybe Silver Spring can be the smart-grid champion to get the ball rolling. If utilities can’t deliver the full range of services and savings they’ve promised from their smart meters, however, regulators and customers might start to believe the entire smart grid is a waste of money, spelling disaster for everyone involved, Silver Spring included.
Question of the week
We’ve got a new biofuel IPO to watch this morning — and so far, it isn’t going so well. KiOR, the Pasadena, Texas-based company with technology to turn wood chips and other biomass into a substitute for crude oil, made its decidedly lackluster Nasdaq debut this morning, after pricing its shares at $15 last night to raise $150 million — about a quarter less than the previously revised target price of $19 to $21 per share. So far, the company’s shares are trading flat — a departure from the well-received IPOs of biofuel companies Solazyme and Gevo earlier this year. What’s the difference? For one, KiOR’s approach to the biofuel market is decidedly different, since it’s making a crude oil substitute rather than algae-based oils and other products, as Solazyme does, or biochemical and fuel precursor bioisobutanol, as Gevo does. Those two companies are also targeting production of biochemicals before they start making biofuels, giving them early markets to generate revenues. KiOR is betting the farm on entering the fuel market from the get-go. Also, KiOR has no reported revenues and says it will rely on a $1 billion Department of Energy loan guarantee to scale up its plans for multiple commercial production-scale facilities. Interestingly, KiOR is 70-percent owned by backer Khosla Ventures, which gives the firm effective control over the startup — an unusual arrangement.
After looking at its prospectus, people are still arguing about Groupon’s IPO. I’ll be writing about how Groupon can start making money in my Weekly Update. Groupon may be aiming to raise as much as $3 billion at a $30 billion valuation. Ryan Kim summarizes what’s going on with some of the big numbers, and Matthew Ingram documents one of the arguments. Deal aggregator Yipit has the best analysis I’ve seen yet on some red flags revealed by the S-1, and here are some more cautions. Meanwhile, you can catch up on the social commerce space with my long report.
Looks like algae that grows in the dark is a hit on Wall Street. At least, that’s how Solazyme’s IPO today seems to be turning out, as the algae-to-biochemicals and biofuels company saw its shares rise 20 percent, from their opening price of $18 per share to as high as $21.64, in early trading today. That adds up to about $197.55 million raised so far, compared to the South San Francisco, Calif.-based company’s initial plans to raise about $100 million. It appears that investors including The Roda Group, Braemar Energy Ventures, the Fiddler Group and Lightspeed Venture Partners will be seeing a healthy return on their bets. That wasn’t unexpected, necessarily — previous biofuel IPOs, such as Gevo and Amyris, have done quite well as well. But as one of the first credible algae biofuel companies to seek the support of the public markets, Solazyme serves as a special case. It should be noted that it’s also special among its other algae-to-biofuel contenders, in that its algae are genetically engineered to grow in the dark in closed bioreactors while fed on sugar — much different than most algae companies that are seeking to grow algae in open ponds using sunlight and naturally occurring carbon dioxide. Now Solazyme will need to execute on its plans to supply algae oils to partners such as Dow Chemical and Sephora for various industrial and consumer products purposes, as well as seek a path to large-scale production for fuel, the biggest plum in terms of future markets — and the hardest to tackle in terms of low-cost production.
For those of you that started your weekend a bit early on Friday (like me), here’s the news you missed — BrightSource Energy has announced plans for a $250 million IPO. The long-awaited move by the Oakland, Calif.-based solar thermal power technology provider and power plant developer gives us all a chance to find out just how excited investors will be by a richly funded solar power startup trying to grow to utility industry scale. BrightSource has raised $530 million since its 2003 founding, so it will have to perform pretty well to give those backers a return on their investment. It also has a $1.6 billion Department of Energy loan guarantee in hand to start building its make-or-break project, the 392-megawatt Ivanpah solar power project in California’s Mojave Desert. As its S-1 filing indicates, BrightSource has raised $2.2 billion in financing commitments for the project. It needs the project to succeed if it’s to start earning revenues to tackle its estimated $1.8 billion in debt and financial obligations, prove its technology works at scale and deliver on its commitments for another 2.6 gigawatts of projects its signed power purchase agreements to deliver on.
The Cleantech Group released its report on first quarter 2011’s green technology venture capital investment, and what a quarter it was. We’ve already reported on the top-line figure of $2.57 billion, which is the second-highest quarter on record after Q3 2008’s $3 billion — what else is going on? Well, first of all, North America took the lion’s share of the money, with 85 percent of the total, or $2 billion — way up from the $1.04 billion North American greentech firms got the fourth quarter of 2010. Secondly, solar continued to top the roster, with $594 million in 26 deals, followed by green transportation with $311 million — both sectors driven by several $100 million-plus deals for later-stage companies striving to reach commercial production stage. Indeed, in a first quarter that saw the only 159 funding rounds, the smallest number since mid-2009, later-stage investments dominated, with 65 percent of the deals and 93 percent, or $2.39 billion, of the quarter’s dollar total. Finally, while greentech IPOs were way down — nine in the first quarter for $2.1 billion, from 30 for $8.24 billion in the fourth quarter of 2010 — greentech M&A was way up, with 215 transactions and $15.3 billion for the 49 transactions that disclosed valuations, up from the fourth quarter’s 148 transactions and $8.76 billion for the 45 that disclosed financial terms.
Venture capital firms poured $2.5 billion into green technology in the first quarter of 2011, according to figures from Cleantech Group reported in a news story over the weekend. That’s the second-highest quarterly figure ever for the industry after the $3 billion raised in the third quarter of 2008 and a big improvement from the $1.68 billion raised in the fourth quarter of 2010. But is the upswing in venture investment a sign of renewed investor confidence, or a sign that VCs are stepping into the breach that might otherwise be filled by the public markets? We’ve seen plenty of examples of later-stage greentech startups that have delayed IPO plans as they wait for market conditions to improve — thin-film tubular solar module maker Solyndra being the main example. Some of the biggest raises of the first quarter went to later-stage companies that might have gone to public markets in better economic times — take solar thermal startup BrightSource Energy’s $201 million Series E round, thin-film solar startup Miasole’s $106 million Series F round, and Fisker Automotive’s $150 million investment round. I’m waiting for Cleantech Group to release their official first quarter 2011 report tomorrow morning, but I’m guessing that the data will show that big later-stage rounds made up a significant portion of the quarter’s haul.
How appropriate that the first big IPO news of the new year comes from China. Sinovel Wind, China’s biggest wind turbine producer, announced Tuesday that it plans to raise about 9.46 billion yuan ($1.4 billion) in an initial public offering, Reuters reports. That valuation is about about three times Sinovel’s initial goal of 3.45 billion yuan, and would make its debut the richest ever on the Shanghai stock exchange. Sinovel has precedent, however — China led the world in IPOs last year, with nearly $72 billion raised on the Shanghai and Shenzhen exchanges. Of course, the wind industry has seen a marked slowdown in the second half of 2010, and that’s led to slowdowns in wind power IPOs. In the United States, First Wind canceled its $1.2 billion IPO plans in October, and in December, China’s third-largest wind turbine maker, Huaneng Renewables, postponed its own $1.28 billion IPO on the Hong Kong exchange. No doubt the greentech investment community will be watching Sinovel closely to see whether the new year brings new fortunes to wind power public offerings.
While U.S. venture capitalists have led in global greentech startup investment, it’s developing economies that have driven the green public markets in 2010. That’s according to HSBC, which reported Wednesday that “climate-related” equities in emerging markets saw returns of 2.5 percent in 2010, compared with a 1.2 drop for developed markets. That’s no surprise, given that developing nations are doing well while U.S., European and Japanese economies remain sluggish. Brazil’s market led with 18 percent growth, followed by South Africa at 11.9 percent and South Korea at 6.8 percent. Still, the weight of developed markets dragged down global climate equity returns 0.7 percent for the year, the bank reported. HSBC also found that emerging markets gave out $77 billion in green stimulus, compared with $68 billion from developed nations. China led the way with 1.5 times more stimulus than the United States.