Last month Chicago investment group Advanced Equities agreed to settle charges from the SEC that it misled investors while raising funds for an alternative energy company, revealed to be Bloom Energy. The settlement included paying $1 million, as well as other conditions, and two weeks ago one of those conditions landed on the doorstep of investors in the Advanced Equities funds that might cause problems for Bloom Energy.
As part of the settlement, Advanced Equities sent letters to all investors in its funds Greentech III and Greentech IV — which raised money for Bloom Energy — explaining the charges and the settlement from the SEC and asking the investors if they want to sell their securities in the company. Between January and late March 2009, Advanced Equities raised around $122 million from about 609 individual investors in Greentech III and Greentech IV, according to the SEC settlement documents.
The letter, dated October 16 and titled “Re: Your Investment in Bloom Energy Corporation,” says:
Should you wish to sell your membership interests in Advanced Equities Greentech III, LLC, or Advanced Equities Greentech IV, we will use our best efforts to find a buyer to acquire such interests, at the cost you paid to acquire them.
Advanced Equities says in its settlement documents with the SEC that it promised to:
Deliver, within 30 days of the entry of this Order, by certified U.S. mail, a copy of the Commission’s Order in this matter to each customer of Advanced Equities who invested in Company A at any time between January 1, 2009 and December 31, 2010. . . . [And also] Use its best efforts to locate purchasers for any of its customers who purchased the securities of Company A through Greentech III or Greentech IV in 2009 and who wish to sell their securities at a price equivalent to their original purchase price. [Company A is Bloom Energy].
This letter could be a slight problem for Bloom because if a large chunk of these investors want to sell, and are expecting a certain price, it could add complications for Bloom’s overall fund raising. The company is very capital intensive and as of this summer was reported to be looking to raise another $150 million, which would bring its total funds raised to $800 million over its 11-year lifetime.
Bloom is in a major growth phase right now, meaning it needs more and more cash to deliver on its installations, particularly when it sells its Bloom boxes through its power purchase agreement model (meaning the customer doesn’t pay the upfront cost of the installation). The last thing Bloom needs is financing complications right now.
It’s also hard enough to raise money for greentech firms these days — venture firms are increasingly moving away from supporting greentech, and limited partners are even asking their investors not to use their funds for greentech. The SEC settlement around Bloom’s fund raise back in 2009 and 2010 just adds more suspicion for these investors.
At the same time, the valuation of the company this summer was reportedly $2.7 billion pre-money, which is considerably higher than the $1.45 billion pre-money valuation that Advanced Equities was selling it for back in early 2009. So the price itself might not be a huge concern.
However, SEC charges are never a great thing to be associated with any company when they need to raise money. Bloom Energy is one of the most capital intensive firms in greentech — rivaling fund raises by Solyndra and Fisker. And no doubt a lot of its investors have been hoping for an IPO soon.
The SEC charges were originally over statements made by Advanced Equities co-founder Dwight Badger, who said Bloom Energy had more deals and had hit more milestones than it actually had in 2009. Badger told investors that Bloom Energy had an order for “2,000 [units] from the CIA,” which would have generated $2 billion in revenue for the company. But in reality Bloom Energy didn’t have any orders from the CIA at that time.
The SEC settlement documents only refer to Bloom Energy as “Company A,” and says: “During 2009, Company A operated in “stealth mode” meaning that it provided scant information to the public about its finances, operations or technology.” This was the year before Bloom Energy emerged to the public — in February 2010, Bloom appeared on 60 Minutes, and held a huge launch event.