Finding Trends: Cleantech IPOs Skew Toward Biofuels, Materials, Energy Efficiency

8/17/11Follow @bvbigelow

Even before global markets reacted to the U.S. credit downgrade, IPOs for cleantech companies have been relatively few and far between. Still, the IPO data for the first half of 2011 reveals the kinds of alternative energy and green technology companies are going public—a good indication of which sectors are more likely to attract more venture funding in the future.

Altogether, 11 cleantech companies around the world made their public debuts during the second quarter that ended in June, raising $1.99 billion, according to data from the San Francisco-based Cleantech Group. (Six of those were Chinese IPOs in Asian markets that raised a total of $1.37 billion.)

Several IPO watchers characterized it as a strong quarter that’s more comparable to the first quarter of this year, when the Cleantech Group found that nine IPOs raised more than $2 billion, than to the previous year, which was distorted by several huge IPOs in the second quarter. (A list of the 20 cleantech IPOs so far this year is at the end of this story.)

Three U.S. cleantech companies went public during the second quarter that ended June 30, and two were biofuels companies: South San Francisco, CA-based Solazyme (NASDAQ: SZYM) raised a total of roughly $227 million (including over-allotments) before the Memorial Holiday weekend. Pasadena, TX-based KiOR (NASDAQ: KIOR) raised $150 million in late June. The third company to go public, Cambridge, MA-based Zipcar NASDAQ ZIP), raised $174 million in its April debut.

Zipcar also serves as an example of the inherent challenge in categorizing cleantech companies. While Zipcar ostensibly operates vehicles as part of a nationwide car-sharing service, the Cleantech Group counts Zipcar as a cleantech company because the company says each car shared takes 15 personally owned vehicles off the road, reducing overall gasoline consumption and lowering CO2 emissions by hundreds of thousands of tons each year. Some IPO watchers, however, don’t include Zipcar in their IPO tallies.

Including Gevo (NASDAQ: GEVO), a Denver-area renewable chemicals and advanced biofuels company that raised more than $123 million during the first quarter (March 16), there have been three biofuels IPOs so far this year. If you throw in last year’s IPOs for Redwood City, CA-based Codexis (NASDAQ: [[CDXS]]) and Emeryville, CA-based Amyris, (NASDAQ: AMRS), a total of five U.S. biofuels companies have successfully completed IPOs in the past 16 months.

The Cleantech Group also notes that all cleantech IPOs are not created equal. Of 11 venture-backed U.S. IPOs since the September 2009 IPO of Watertown, MA-based A123 Systems, the Cleantech Group says only four have mature business models that are selling products and generating revenue. KiOR, for example, is generating no revenue and is awaiting an inflection point to prove its business model. As the Cleantech Group puts it, “Many of these IPOs are pricing into a ‘story’ not unlike biotech firms in Clinical Phase II trials.”

The forecast for U.S. IPOs wasn’t exactly clear before the market volatility of recent weeks, and common sense suggests that new issues face a chilly and choppy reception until the markets settle.

Many experts were predicting as recently as May that the $250 million IPO filing by Oakland, CA-based BrightSource Energy could be so successful that it might spur a “Google effect,” with a wave of other cleantech startups following suit. Since then, Petaluma, CA-based Enphase Energy, Golden, CO-based Luca Technologies, Ames, IA-based Renewable Energy have all filed IPOs in the $100 million to $125 million range. A number of other cleantechs, such as Irvine, CA-based Fisker Automotive, Minneapolis-based BioAmber, and San Diego’s Genomatica, are reportedly exploring their own respective public offerings.

Biofuels and sustainable chemical companies remain hot, but solar is not, according to Patrick Pohlen, a leading IPO lawyer and partner in the Latham and Watkins law firm’s Menlo Park, CA, office. “We haven’t seen that many solar companies that have actually gone public [at least in the U.S],” says Pohlen. The lawyer also predicts that venture investment will continue in the cleantech sector, encouraged by continuing liquidity events that comprise both IPOs and buyouts.

“The trend, if there is a trend in cleantech, is that many IPOs were previously focused on biofuels and biofuel-related companies,” says Matt Sapp, an Ernst & Young partner in Silicon Valley who also serves as the firm’s West Region Cleantech Leader. “We’re beginning now to see more non-biofuel IPO filings by companies like Enphase, Brightsource, and Silver Springs Networks.”

Energy generation, new materials, and energy efficiency are emerging as attractive sectors, Sapp says. In Ernst & Young’s analysis of cleantech venture funding during the quarter, Sapp says, “we actually saw an increase in energy efficiency deals. The venture industry is really looking for more efficient business models and cleantech software innovations [in energy management] usually offer that.”

Sapp describes Silver Springs Networks as a smart play because the Redwood City, CA-company specializes in “smart grid” technology that helps electric utilities better manage the power grid—a complex task compounded by the challenge of managing demand as more electric vehicles plug in to recharge. “I definitely believe that smart grid [technology] is strong and growing, and it’s still an emerging area,” Sapp says.

Even though a number of cleantech IPOs in China have been focused on solar energy, Sapp says it’s not a trend he finds troubling. “The Chinese companies have [solar] figured out for manufacturing,” he says, “but the big breakthroughs in intellectual property are still coming from innovative companies in the United States, particularly in California.

Is Sapp looking for a step up in cleantech IPO activity?

“It’s hard to say. It depends on how well the economy holds up—and the markets,” Sapp says. “There are clearly a fair number of companies that are in the process of registering for IPOs.”

The Cleantech Group’s listing of cleantech IPOs through the first half of 2011:

Adecoagro SA Jan. 28    NYSE        $314M

AlgaeTec Jan. 13     Australian Stock Exchanges $6.75M

BYD June 21     Shenzhen Stock Exchange     $219M

Energix Renewable Energy May 5   Tel Aviv Stock Exchange $43.3M

Gevo Feb. 8   NASDAQ    $107.3M

Global Water Resources Jan. 12 Toronto Stock Exchange $61M

Hongli Tronic May 18   Shenzhen Stock Exchange $76.2M

Huaneng Renewable Energy June 10   Hong Kong Stock Exchange  $800M

Jiangsu Jixin Wind Energy Technology May 6  Shanghai Stock Exchange  $191M

Jiangsu Wier Li Environmental Protection Technologies March 15 Shenzhen Stock Exchange $8M

KiOR June 24  NASDAQ $150M

Mission NewEnergy (AUS)  April 20  NASDAQ $25M

Rosetta Green Feb. 22  Tel Aviv Stock Exchange (TASE) $6.1M

Sacred Sun May 6  Shenzhen Stock Exchange  $74.7M

Sinovel Wind Group Jan. 13  Shanghai Stock Exchange  $1.4B

Solazyme May 27   NASDAQ   $227.2M

Unilumin June 22   Shenzhen Stock Exchange   $57.2M

Wanli Ceramics Industry June 13 Korea Stock Exchange  $172.7M

Xuzhou Combustion Control Technology June 29 Shenzhen Stock Exchange  $152M

Zipcar April 14   NASDAQ    $174.2M

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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