Going public has been a ‘bit of a slog’ for high-tech companies

Source: Amanda Peterka, E&E reporter • Posted: Friday, April 25, 2014

After a promising start three years ago, advanced biofuels companies are having difficulty harnessing public markets to raise money, analysts said this week at an annual industry conference.
A few exceptions aside, infusions of cash from investors are hard to come by and stock prices are down as a whole for the companies that decided to go public. As a result, very few new companies have decided to go public recently, the analysts said.”It has been a bit of a slog,” William Lese, managing partner at Braemer Energy Ventures, said at the Advanced Biofuels Leadership Conference near Washington, D.C.Spurred by the federal renewable fuel standard, several companies have developed technology to turn renewable materials into fuel. The 2007 renewable fuel standard that Congress passed mandated that the country shift from corn ethanol to advanced biofuels.

Funding a first commercial operation, though, remains an expensive proposition. A single commercial-scale plant typically costs in the range of $200 million. Going public is one option available for companies in need of cash to scale up technology into commercial success.

Biofuel companies began looking toward initial public offerings in 2010 and 2011. In quick succession, five biofuel startups held IPOs.

Some of the payoffs were large. California-based Solazyme Inc., which has developed technology to harvest algae oil, raised $227 million in its initial public offering. KiOR Inc., a biofuels company that has built a plant in Mississippi to produce cellulosic gasoline and diesel, raised $150 million. Gevo Inc., a company aiming to produce isobutanol as a fuel, raised $123.3 million. Amyris Inc. raised $84.8 million, while Codexis Inc. raised $78 million.

“At the time, what you could have done is basically buy every one of those IPOs on the day of the IPO, sell it in about six months, and you would have doubled your money,” said Pavel Molchanov, senior vice president of energy equity research at Raymond James & Associates Inc.

The “boomlet” didn’t last very long, as companies began overpromising and underdelivering, according to Molchanov. Some of them missed expectations and failed to meet targets. Public investors began to cast doubt on the entire industry, and stock prices began to fall.

“Fast-forward to 2012. You had the exact opposite, complete mirror image, where it was just absolute bloodbath,” Molchanov said.

Performance since then has been “pretty dismal,” said Mike Ritzenthaler, a senior analyst at Piper Jaffray. The most notable downfall has been KiOR, which earlier this year idled operations after failing to hit production targets at its plant in Columbus, Miss., and said it had concerns about its ability to continue operating (Greenwire, March 21).

KiOR’s stocks, which were priced at $15 for its IPO, have traded at less than $1 for more than a month.

A large part of the problem is that companies jumped on the public bandwagon too early, Ritzenthaler said.

“There’s expectations that analysts set. They’re not always met. That’s certainly not unique to the bio-industrial space at all,” Ritzenthaler said. “But we’ve heard too often from investors that we wish company X were still private so they could work on ironing out commercial or technical milestones as they come up.”

As with other clean-tech sectors, companies have also been focused on “moonshots” — or hitting big goals — and not on building up a track record of smaller, incremental improvements, Ritzenthaler said.

“Setting appropriate milestones oftentimes feels too cautious for management teams that can be cavalier and perhaps underestimate the risks that are involved and the timing,” he said.

Still, there are signs of life. Solazyme’s stock, for example, has been trading higher in the past six months and was at $11.39 a share this morning.

“Reports of our demise have truly been greatly exaggerated,” Solazyme CEO Jonathan Wolfson said this week.

The company is likely to reach production this year in two separate locations in the country; in January, it announced that it was producing algal oil already at a collaborative project in Iowa with Archer Daniels-Midland Co. It is, however, focusing first on high-value markets like cosmetics and nutrition instead of fuels.

Amyris has also shifted its strategy from trying to simultaneously ramp up production in several contract facilities while building its own plants. It is now slowing the ramp-up of production in one plant in a strategy that will likely pay off, said Rob Stone, managing director and senior research analyst of alternative energy at the Cowen Group Inc.

Renewable Energy Group Inc., the nation’s largest biodiesel company, has also announced recent successes. Biodiesel is an advanced biofuel made from soybean oil, animal fats and used cooking grease.

REG went public in January 2012, raising $72 million in its IPO, and in the last few months has expanded its business into petroleum and renewable chemical markets (Greenwire, Feb. 14).

But don’t expect the public markets to pick back up to 2011 levels anytime soon, analysts said. Since the early boomlet, only a handful of companies have had IPOs. Several biofuels and renewable chemical companies — including Mascoma Corp., Enerkem, Genomatica Inc., Coskata Inc. and Myriant Corp. — have withdrawn IPOs.

The advanced biofuels sector needs a winner to improve its image among public investors, according to Ritzenthaler.

“Gone are the days of public venture capital,” he said. “I just don’t see investors’ risk appetites changing to the point of wanting to take on commercially unproven technologies, at least not for three or four years.”