Will ‘green’ IPOs get a better reception in ‘09?

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From Times staff writer Edward Silver:

Early in 2008, it seemed venture capitalists would have ample opportunity to cash in some of their stakes in green start-ups. As it turned out, the initial public offering market went into a deep freeze. Only a handful of clean-tech companies went public, and several put their plans on indefinite hold.

As we march nervously into ’09, green fledglings still are virtually barred from the stock exchange. A lot can change in the course of the year, though. Before it’s over, the Obama regime, rolling out its plan to stir growth in sustainable industry, could pry the gate open.

Investors who bought into green IPOs last year were burned. GT Solar International, which makes production equipment, went public at $16.50. Shares of Real Goods Solar were initially priced at $10. Both now are under $5. The slide has not been as steep for Energy Recovery, which has the know-how to conserve energy in water desalination. It went out at $8.50 in July and now is at $6.85.

With Wall Street still on edge, for the moment few investors are keen to take chances on fledglings that have much to prove, even those with much promise. . . .

Sam Snyder, an analyst at IPO research house Renaissance Capital, said the focus is squarely on the fundamentals. Investors are ‘looking not just for sales growth but earnings, and a clean balance sheet without much debt,’ he said. ‘It will be hard for management at these companies to get good valuations, so they are probably going to wait till conditions improve.’

For some, the wait will be too long and their funding will dry up. Others will be able to build on their strengths, whether it’s collecting new clients, honing their technology or launching projects with powerful partners, which often come with funding support. Most likely, they will get their stock symbols when the mood changes in the market and investors are willing to accept some risk for a shot at growth.

One IPO candidate, A123 Systems of Watertown, Mass., faces sizable obstacles. The lithium-ion battery builder filed to go public last year but postponed those plans as the market turned sour.

A more established firm from South Korea bested A123 in the contest to supply the get-up-and-go for General Motors’ Volt electric car, due in 2010. Think, a Norwegian electric vehicle maker, was a customer before it suspended production, and its future is uncertain. To date, tool maker Black & Decker has contributed the biggest part of A123’s revenue, but spending on those kinds of goods isn’t what it once was.

Advanced power storage comes into play in a smarter, more efficient electric grid, and A123 is targeting that market too. General Electric, an investor in the company, may help the firm open doors with utilities as doors close elsewhere. Procter & Gamble and venture firm Sequoia Capital also are investors.

Solar start-up Solyndra likewise has deep-pocketed friends. The Fremont, Calif., firm applies its ‘thin film’ potion to cylindrical tubes, enabling them to absorb sunlight from every angle, it says. The payoff is a more productive, lower-cost solar rooftop.

Although Solyndra has development tasks ahead of it, and thin film claims only a fraction of the overall solar market, venture investors have been wowed by the success of thin-film luminary First Solar. And Solyndra says it has customer contracts worth $1.5 billion.

Here’s another big number: The firm appears to have raised more than $800 million in 2008 from such sources as Richard Branson’s Virgin Green fund, the Abu Dhabi-based Masdar fund and clean-tech VCs RockPort Capital.

Whether either A123 or Solyndra squeezes through the new-issue door in the next year or two, the shutdown of the IPO market imposes costs far beyond green hopefuls and their backers. Entrepreneurs in this field apply inspiration and perspiration to addressing planetary needs. If a venture investor who funded electric-vehicle parts doesn’t get paid back, or a solar company with a more efficient module can’t raise cash by selling stock, then sustainable solutions risk being stillborn.

Or those innovations may come to market elsewhere -- in India, Brazil or Denmark. In that case, the U.S. will be paying up overseas rather than selling to the world.

Will the market turn cordial to green IPOs this year? The wild card, Snyder said, is the Obama White House. The green-swathed new administration is seeking a huge fiscal-stimulus program with an accent on the environment and energy security.

‘If the U.S. was to really ramp up subsidies for green, that would draw more investment and IPO activity,’ Snyder said. ‘But now, it’s too early to know.’

Top photo: One of A123 Systems’ Nanophosphate lithium-ion batteries. Credit: A123 Systems