Initial public offerings as of late have been about as common as celebratory banquets for Wall Street bankers. Last week, however, after some nine months of an IPO drought, two venture-backed startups, software maker SolarWinds and online restaurant reservation system OpenTable, broke the mold and went public. Neither was a cleantech firm, but the news was a positive sign for cleantech investor Steve Westly, managing partner of Menlo Park, Calif.-based venture firm The Westly Group. Westly tells us he sees a changing appetite for companies going public, and he predicts that venture-backed cleantech IPOs will happen by early 2010.
“I’ll go out on a limb -– Tesla, Silver Spring Networks, and possibly Solyndra will go public by the first quarter of next year,” he said in an interview. “I say this because all three of these companies in 2008 did between $10 million and $15 million in revenue, and in 2009 they will do over $150 million. When a company has 10x growth, that is a company you can take public.” The Westly Group has invested about $50 million into cleantech startups, including some $5 million in electric car maker Tesla. It has not backed smart grid startup Silver Spring Networks nor thin-film solar manufacturer Solyndra.
Westly acknowledged that it’s harder for startups to go public now than it was two years ago, but he said any company that does more than $100 million in revenue with 1,000 percent growth is going to attract interest in the market, regardless of a downturn.
Tesla didn’t respond to requests for comment on its IPO plans. But the company told us back in early 2008 that 2009 would be the year for its IPO (that was before the stock markets took a nose dive, and the appetite for IPOs dried up). Tesla CEO and Chairman Elon Musk reportedly said last year that he planned to raise $100 million from an IPO, but would first raise another round of financing and also wanted the company to be profitable. If those were the two criteria, at least one has been achieved: Tesla announced early last week that German automaker Daimler had taken a roughly 10 percent stake in the San Carlos, Calif.-based startup.
The electric automaker has also applied for a $350 million loan from the Department of Energy to build a factory for its new sedan, the Model S, which it hopes to be producing by late 2011. In the meantime, Tesla is selling its Roadsters for revenue. It also has a powertrain supply unit that Musk has described as cash-flow positive, although Daimler is the only powertrain customer announced so far. The company does not expect to be profitable this year, spokeswoman Rachel Konrad told us in February.
But investors will be interested in Tesla’s revenue today, not what is potentially coming down the pike, said Francis Gaskins, president of IPOdesktop.com, an IPO research firm based in Los Angeles. “In this environment, people don’t look out nine months and say you have revenue coming. They want to see it now,” Gaskins said.
Silver Spring IPO?
Silver Spring Networks develops and builds the network infrastructure on which utilities can hang their smart grid buildouts. The Redwood City, Calif.-based startup has raised more than $150 million in venture funding and has inked deals with utilities like Pacific Gas & Electric. The company had no comment regarding an IPO, except to say that a “public offering is possible, as are other options.”
By late last year, the company had already inked multiyear contracts worth more than $500 million, and CEO Scott Lang said he expected that to increase to $1 billion by the end of 2009. He said the company would be profitable this year on revenue exceeding $75 million. The Silver Spring team just might have a shot, and the fact that they aren’t reliant on multimillion-dollar factories to expand is an important bonus as investors look to be capital efficient. That said, they face a serious competitor in Cisco.
Solyndra, the Fremont, Calif.-based manufacturer of thin-film solar tubes, stayed quiet for years, but came out of stealth with an announcement that it raised a massive $600 million from investors. Since then the company has announced sales contracts of approximately $1.8 billion, and in recent weeks, announced deals totaling some $300 million to supply panels to European integrators. Some of its competitors, including thin-film solar maker Nanosolar, have publicly disparaged the company’s claims.
Even the U.S. government has taken notice. Back in March the DOE offered Solyndra the first loan guarantee under a much-delayed program created under the Energy Policy Act of 2005. Solyndra plans to use the $535 million loan guarantee to help finance a new manufacturing plant for cylindrical solar panels in California. Tim Carey, who advises cleantech companies for PricewaterhouseCoopers, said any cleantech company that can access DOE money will be in a stronger position to eventually go public. “I would think that as companies access these funds and implement on growth plans, you may start to see some go public in 2010,” he said.
Stephen Simko, solar analyst for Morningstar, still thinks it will be difficult for a solar company to IPO in this market. Solar panel supply far outstrips demand today, and financing for projects is difficult to access. “If lending thaws and the U.S. solar market starts to rise that will lead to the conditions necessary for companies to improve profit and that might lead to IPOs,” he said. “But only the best of breed will be considered.” Solyndra declined to comment for this article.
Of course, it might not be any of these three startups that make headlines as the first cleantech IPO after the drought. First Wind, a wind energy developer, and lithium-ion battery maker A123 Systems both filed for IPOs in late 2008. While the filings don’t necessarily mean they will go public, it at least means executives at the firms have their eyes on that prize.