Electric car maker Tesla Motors officially delivered the biggest venture backed IPO of the quarter, raising $226 million, according to numbers out this week from the National Venture Capital Association and Thomson Reuters. What made the public debut different from some of the other venture-backed IPOs that happened this quarter? Well, among a variety of things, last summer Tesla managed to score a coveted $465 million in loans from the Department of Energy.
The link with Uncle Sam likely helped allay investors fears over supporting a risky company that has yet to make a profit and doesn’t plan on making any profits for the next two years. Tesla isn’t the only greentech IPO hopeful backed by the government. In fact, a large number of the greentech companies that have been gunning for the public market, or have recently gone public, have significant government support.
Take lithium ion battery maker A123Systems. The venture-backed company raised $371 million in its public debut in 2009, which was the largest IPO of the year, and represented about a third of the overall IPO market that year in terms of dollars raised. A123 secured a sizable $249 million grant from the Department of Energy last summer.
Before Tesla, the venture-backed greentech IPO hopeful of the hour was solar panel maker Solyndra, which hosted a speech by President Obama in May. Last year the company won a whopping $535 million loan guarantee from the U.S. Department of Energy, and that loan guarantee translated into a loan from the U.S. Treasury. However, despite the government support, investors’ appetites for solar, and Solyndra’s, IPO just wasn’t there and Solyndra ended up ditching its IPO plans last month, in lieu of raising funding from its current investors.
This week, shortly after Tesla’s IPO, an investor behind another venture-backed and government-supported electric car maker suggested it will also one day go public. That would be Fisker Automotive, and Ray Lane, the Kleiner Perkins venture capitalist and former Oracle executive, said this week that “Certainly we would plan to sell shares in the public market once the Karma is on the road and we have visibility into the revenue plan.” In April Fisker closed a $528.7 million loan agreement that will be used to help the startup launch its luxury plug-in hybrid model and set up manufacturing in Delaware for a line of lower-cost plug-in hybrids.
Smart grid company Silver Spring Networks, which has been planning an IPO for the last six months, might not have direct government support, but the close to $4 billion in funds for smart grid projects from the U.S. stimulus package has been a major boon to its utility customers. The Silver Spring folks told me in an email last year that the funding “will go a long way toward accelerating and broadening deployment of the critical smart grid infrastructure.” Silver Spring is working with stimulus award winners Florida Power & Light, Oklahoma Gas and Electric, Sacramento Municipal Utility District, PHI Holdings (including PEPCO, Atlantic City and PEPCO DC) and Modesto Irrigation District.
Other rumored greentech IPO hopefuls (here’s Earth2Tech’s 10 Greentech IPO Picks) that have some sort of government support include solar thermal developer BrightSource Energy and Smith Electric Vehicles. BrightSource received a commitment earlier this year from the Department of Energy for a $1.37 billion loan guarantee to build out BrightSource’s Ivanpah solar project, which is set to be the first new solar thermal power plant built in California’s deserts in 20 years. Smith Electric Vehicles won a $10 million DOE battery grant last summer, and added $22 million under the same program in March.
Of course, not all of the greentech IPO candidates are under the wing of the U.S. government. Biofuel developer Amyris is planning a $100 million IPO without direct government support. But the odds are if you see a greentech startup hit the Nasdaq it’s got Uncle Sam in its corner.
The reality says a couple things about the greentech industry and the IPO market in general. First the IPO market for venture-backed startups is actually relatively weak right now. A significant amount of companies have actually pulled their IPOs in recent weeks and that extra bit of confidence via government support can help push these plans onto the public markets (Solyndra as the exception).
Another issue is that many of the government loans, grants and loan guarantees given to these greentech startups come attached with a cost-sharing requirement over a certain time frame. To unlock the full extent of the government funding companies like Tesla and Solyndra have to raise their own matching funding, by a certain date, and many are turning to the public markets for that.
Finally, more than any other venture sector, greentech companies rely on subsidies to be economical. Whether its biofuel developers and the ethanol mandates, solar firms and the solar financing tax credits, or wind makers and state renewable portfolio standards. Clean power is generally a more expensive replacement to fossil fuel power. Electric cars are a more expensive green replacement for internal combustion cars. Until that changes, significant subsidies will be needed and will help drive these companies IPO plans.
For more research on cleantech financing check out GigaOM Pro (subscription required):
Image courtesy of humbertomoreno’s photostream.