Daniel Englander
Silent and Deadly, but Not in the Smelly Kind of Way May 9, 2008 at 11:58 AM
The IPO market for greentech companies has always been a little spotty. Between 2005 and 2007, only five greentech companies listed on the NASDAQ, “raising an average of $77 million each and reaching average post-IPO valuations of $245 million.” First Solar, which raised $400 million in its 2006 IPO, has so far been the great success story in greentech exits. With American VCs literally killing each other to fund greentech companies, investing $3.43 billion in the first three quarters of 2007 - up roughly 50 percent in 2006, the nagging question of how far the tide can rise before it lifts all the boats remains. How will VCs, who typically expect a 10x return over a five to seven year investment horizon, squeeze $34.3 billion out of a relatively tight exit market? Will there be a killer amp? Will there be a greentech Google?
The answer is a little murkier that many have expected. A primary difference between greentech and, say, the web or telecom, is that with greentech we’ve got a defined endpoint: to disrupt and revolutionize the global energy infrastructure. Simple, huh? The company or companies or sector that wins out and becomes the Next Big Thing will need to build products that are easily integrated and accessible, satisfy demand in a major market, and can get by without requiring a vast restructuring of policy-backed incentives, subsidies, or consumer habits. In short, the Next Big Thing might not be what we need. Instead, we may need to look for The Silent Killer.
Who among you aspires to rise to the level of heart disease, radon, or cooties? The hope is that all of the big deals announced in the recent past, including Heliovolt’s $101 million, Project Better Place’s $230 million, and the $250 million+ raised by perennial favorite Bloom Energy over the past years, will come to fruition this year. Surely IPOs from any of these companies will generate investor interest, big returns, and more than a few new Ferraris in the Valley. In fact, the NVCA and PricewaterhouseCooper have gone out on a limb, naming 2008 the year “cleantech comes of age.”
But do these companies satisfy all of our Silent Killer criteria? Not quite. Who would really go off the grid and rely solely on a distributed fuel cell (if that’s what they’re really up to)? Would a battery-share EV program really work in the ruggedly individualistic U.S.? How many years will we need to wait until a policy comes along in this country that makes CIGS BIPV affordable for the mass market? Exactly. But don’t get nervous. The Silent Killer is among us. Maybe.
Since rumors about A123’s upcoming IPO surfaced last week, I’ve been thinking a lot about this company’s unique approach to disruption. Like many kids who went to college on the West Coast, I used to be a Marxist. Actually, first I was a communist, then a Maoist (briefly), then a Marxist, then finally a self-styled Marxist revisionist. I, like Gramsci and Althusser, believed the most effective way to stick it the Man was to destroy him from the inside. A123 is like the Marxist revisionist of greentech. The company has built some big partnerships with General Electric and General Motors, has recently picked up $12.5 million from the DOE-funded U.S. Advanced Battery Consortium, and has worked like crazy to get its product out in both PHEVs and EVs. By working with the big guns at the U.S. ABC - including Chrysler, Ford, and GM - A123 has done more to advance its cause and seal their fate than nearly any other greentech company with regards to their respective replacement industry.
Because sales of trucks and SUVs are way down, and sales of small cars generally, and hybrids in particular, are way up, it’s beginning to become apparent that American consumers are looking for something a little more significant in their driving experience. It’s not much of a jump to go from owning a hybrid to owning a PHEV, nor is it that much more expensive. So, it’s possible that A123 has managed to hit all the switches. Is it our Silent Killer? Maybe, though it’s got a better chance than some of the other companies VCs have pegged their hopes and dreams to. The answer will likely come in September. Until then we’ll just have take a few aspirin, put on some thick socks, and hang on tight.
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