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Stunning Cleantech 2012

It’s been a busy, ummm interesting year.  We’ve tracked profits to founders and investors of $14 Billion in major global IPOs on US  exchanges and $9 Billion in major global M&A exits from venture backed cleantech companies in the last 7-10 years.  Money is being made.  A lot of money.  But wow, not where you’d imagine it.

5 Stunners:

  • Recurrent Energy, bought by Sharp Solar for $305 mm, now on the block by Sharp Solar for $321 mm.  Can we say, what we have here gentlemen, is a failure to integrate?  This was one of the best exits in the sector.
  • Solyndra Sues Chinese solar companies for anti-trust, blaming in part their subsidized loans????????  Did the lawyers miss the whole Solyndra DOE Loan Guarantee part?  It kind of made the papers.
  • A123, announced bought / bailed out by Chinese manufacturer a month ago, now going chapter bankruptcy and debtor in possession from virtually the only US lithium ion battery competitor Johnson Controls?
  • MiaSole, one of the original thin film companies, 9 figure valuation and a $55 mm raise not too long ago (measure in months), cumulative c $400 million in the deal, sold for $30 mm to Chinese Hanergy just a few months later.  (Not that this wasn’t called over and over again by industry analysts.)
  • Solar City files for IPO, finally!

 

My call for the 5 highest risk mega stunners yet to come:

  • Better Place – Ummmmmmmmmm.  Sorry it makes me cringe to even discuss.  Just think through a breakeven analysis on this one.
  • Solar City – a terrifically neat company, and one that has never had a challenge driving revenues, margin, on the other hand . . .
  • BrightSource – see our earlier blog
  • Kior – again, see our prior comments.  Refining is hard.
  •  Tesla – Currently carrying the day in cleantech exit returns, I’m just really really really struggling to see the combination or sales growth, ontime deliveries, and margins here needed to justify valuation.

I’m not denigrating the investors or teams who made these bets.  Our thesis has been in cleantech, the business is there, but risk is getting mispriced on a grand scale, and the ante up to play the game is huge.

 

IPOs and Bankruptcies and Cleantech “Hot or Not”

Last night while watching Office reruns, I realized I’d been remiss, and a lot’s had been happening in the public equities end of the cleantech sector.  Not to mention yesterday’s billion dollar BK broiler announcement by the one-time Next Greatest Thing, Solyndra.

So, with my usual aplomb, I thought I’d simply peanut gallery what’s “Hot or Not” in cleantech.

 

Bled Out on the Operating Table

Solyndra – BK (and not the burger kind). Well, we wrote about it a lot, and nobody believes us.  But bad product is bad product, and high cost is high cost, regardless of how much money you throw at it.  So who’s going to calculate the impact on the DOE loan guarantee program’s projected loan losses? Not.

Evergreen Solar (NASDAQ:ESLR)  – :(  And it was such cool technology, too.  I’m very sorry to see this one go.  At one point some years back it was the savior deal of the sector.  But we are in a race to cost down or die. Not.

 

Filed, Not Yet Hell for Leather

Enphase – I’m very very interested in seeing these guys make it.   Lots of growth.  Very thin margins so far.  Product costs looks miserably high.  Need to cost down like a banshee running from the Bill Murray.  But you’ve got to love the category killer potential and how fast they’ve executed.  First microinverter guy to manufacturing maturity eats the others like oatmeal (sloppy but eaten nonetheless). Hot.

Silver Spring – Hmmmmmmmmh.  Home run potential, but what’s the term?  Very high beta?  These contracts are massive, far strung, very very tight margin.  They’ve shown they can get the growth.  But with long lead time sticky contracts, it’s about managing costs during slippage and change-orders well, and it’s a very competitive business.  One blown contract gives back all the profits on the last 8.  But, give kudos for getting this far and making it to be a real player.  Now we’ll see if you can execute. Hot.

Luca Technologies – Hello?  Are you serious?  I read this S-1 cover to cover.  I had my technologist read it and go find their patents.  We love this area.  The concept of microbes for in situ is old as can be, but very very interesting..  The challenge is always cost and performance (not really a new nutrient mix?).  How do you get the bugs, nutrients, whatever you’re doing, down the hole and into the formation far enough and cheap and effectively enough to make a difference.  But in the entire S-1 and website, there is not a single technology description, fact, proof point or ANYTHING that suggests they’ve actually cracked the real nut.  The few numbers they do mention are not even to the ho-hum level.  Did a real investment banker really sign up to this?  Who wrote this?  Their PR guy with a liberal arts studies degree?  Really?  This smacks of a “trust us I’m Jesus and daddy needs an exit” deal.  In reality, probably interesting, but still very very very very very very very early science project.   Not.

 

We have a whole collection of biofuels stocks to discuss now.

Solazyme (NASDAQ:SZYM) – half of its 52 week, less than a buck over its low. Not.

Kior (NASDAQ:KIOR) – Somebody correct me, but did the filings really indicate Khosla put money IN to this IPO?  And it got off at low end of the range even after that? From one of their filings: “In conjunction with the Issuer’s IPO, an entity affiliated with the Reporting Persons purchased 1,250,000 shares of Class A common stock, resulting in an increase in beneficial ownership by the Reporting Persons by that amount. The
purchase was made at the initial public offering price of $15.00 per share, for an aggregate purchase price of $18,750,000. The source of funds used to purchase the shares of Class A common stock was Khosla’s personal assets.” At least it’s money where it’s mouth is.  Not.

Amyris (NASDAQ:AMRS) – 58% of its 52 week high, 20% over it’s low. Not.

Gevo (NASDAQ:GEVO) – 40% of its 52 week high, c. 20% off it’s low. Not.

Codexis (NASDAQ:CDXS) – 55% of its 52 week high, c. 20% off it’s lows. Not.

I’d comment on the fundamentals of each one, but I don’t want you to think I’m depressed.  Oh, by the way.  Did I ever tell you the story about the cleantech sector’s magically changing cellulosic biofuels business plans to “cellulosic bio-anything-but-fuels” plans as people finally woke up and realized how tough using lousy feedstocks and high cost processes in a commodities market actually is.  Of course, careful you don’t change from targeting fuels to making feedstock for dirt cheap who would want to be in that business commodity chemicals or specialty chemicals with a global aggregate gross margin market less than your cash on balance sheet.

And a Few Tidbits

Advanced Energy (NASDAQ: AEIS) – I still really like this company.  Somebody’s going to own inverters.  And the numbers look very interesting.  Very. Need to dig deeper. Hot.

American Superconductor (NASDAQ:AMSC) – Ummm.  Do you believe their wind business ever recovers?  One customer.  Buying a competitor with one customer.  Both in China.  Customer doesn’t like single supplier risk where the supplier makes high margins?  What did you think was going to happen?  Ugly ugly story.  Very real possibility that they trade on a log curve to straight zero.  Some chance of sunshine, but I’d cancel the picnic. Not.

A123 (NASDAQ:AONE) – I really really really want this to work.  But what’s the path to profits?  Not feeling it. Not.

Tesla (NASDAQ:TSLA) –  “Don’t worry, the NEXT car will fix my company’s fundamental problems” – quote attributed to the Tesla CEO who replaces the next Tesla CEO. Not.

Active Power (NASDAQ: ACPW) – Hey, did anyone notice these guys are growing revenues AND margins?  A long haul, but keep it up!  Need careful consideration before I’d jump into flywheels, but someone deserves a ton of credit as coach of the year.  Hot.

Satcon (NASDAQ:SATC) – Hammered, but still a market leader.  Got to think about this one – it’s historically traded for more than it’s fundamentals justified, but with PV Powered and Xantrex snapped up, hard to imagine they stay independent for long. Hot.

SunPower (NASDAQ:SPWR)  – Wow.  Total. No guts no glory.  Highest cost producer, shall we call it the “performance queen”.  I do like this bet by Total, but it takes guts.  But when a market leader’s stock’s been hammered that far down somebody’s got to move and Total did . . .  Whether an individual investor can play is another story. Hot.

Ascent Solar (NASDAQ:ASTI) – Holy star solar batman!  These guys can sell ice to eskimos are have always been great R&D guys.  Still maybe the highest cost CIGS process known to astronauts.  I like these guys, but I’m not sure more cash fixes anything. Not.

Solon – What does “New US operational strategy” mean?  It means solar is a game of scale and execution.  Not.

 

A Holy Moly Gutsy Week in Cleantech

Reading cleantech news and SEC filings this last couple of weeks makes for a holy moly OMG damn that takes guts set of moments. Well, the cleantech sector is nothing if not entertaining.  I’m obviously going to have to up my game and find more entertaining deals.

 

Total buys controlling stake in Sunpower. Sunpower was certainly a pioneer, and really kicked off vertical integration in photovoltaics with its acquisition of Powerlight in 2006. $2.3 Billion equity valuation? 46% share price acquisition premium? Wow. No guts, no glory. But at something like a little south of a PE of 30 on the 2011 earnings guidance as well as 2011 year over year revenue growth forecast of close to 30%, probably not too far out of line. And they didn’t even have to buy the whole thing!

Sunpower has had a hell of a run, but basically every solar analyst on the planet has been crowing that its core strategic advantages have seriously eroded. And maybe they have. We shall see. But growth is growth, and high performance panels are high performance panels. With another $1 billion in letter of credit from Total to backstop it, I think this is a gutsy, but strong move. If I’m Sunpower, I needed to do something. And with my stock price at not much over 10% of my high? This is a deal I’ll take. And if I’m Total, buy control of Sunpower for a 7th of it’s price peak and a PEG of around 1 to get a Tier 1 position in solar and stacks of growth potential I can pour cash into? Or build another offshore platform? Hmmmmmmh. I think I’d actually like the solar play this time. And take the margin risk.

 

KiOR files for IPO. Um, wow. Fascinating technology, though still a lot of scale-up to be done. We know for sure that Vinod Khosla has a cast iron stomach and more guts than me. I read the S-1 cover to cover last night. S-1s are notoriously messy reading and tricky to decipher how the venture rounds were done, but here’s what it looks like at first read:

July 07 Khosla invests $2.5 mm in a milestone deal of $1.4 and $1.1 for c. 50% of the stock excl option plan, a c. $2.5-3 mm pre money/ $5-6 mm post.  Great, nice cheap deal.
Mid 08 Artis (who was also heavy into Solyndra) and Alberta Investment pump in another c. $12 mm for c. 55% excl option plan, about a 1x uptick c. $10-12 mm pre-money.  CEO comes in here.  Price and capital in still within normalcy, but rolling almost as fast as we did our Zenergy deal in superconductors a few years back. But then it gets really gutsy.
Aug 09 Khosla $15 mm bridges a conv note, and gets paid handsomely when in
mid 2010 Khosla puts in another $80-90 mm in addition to the prior Convertible note for 35% of the Company, but all of the voting control.

Somewhere in there the state of Mississippi gives them $75 mm in no interest loans kicking in this last quarter (which sounds like it goes into default if KiOR doesn’t invest $500 mm into the state of Mississppi by 2015).

They then file for an IPO with Credit Suisse, UBS, and Goldman. All with like just a 15 barrel of oil equivalent per day pilot plant, planning to scale to a still miniscule 800 BOEPD with the couple of hundred million dollar investment from Mississippi and Khosla.

This isn’t just Khosla priming the pump and dumping on the rest of the venture world.  This is money where your mouth is.  This is make ’em pay to play style Texas Hold’em.  Pushing all in on a pair of queens with a straight flush showing on the flop.  Figuring pot odds be damned, the pair of queens is worth a shot if we can push half the table in with us, and we’ll just buy back in and do it again  if it doesn’t work out.  Damn. No guts no glory.

 

And of course, for BrightSource, one IPO filing and more “tortoise troubles”. Basically the regulators now think there are more endangered desert tortoises getting moved or killed than they had permitted Brightsource at Ivanpah.   The week after you file for an IPO and Google gives you money? 😉

And phase II and III are on ice or partial ice. I asked my wife how exactly it happens that they miss this badly on the number of tortoises (she’s been doing environmental risk assessments in the SoCal desert her whole career).  Her answer, usually means somebody on one side or the other doesn’t understand statistics.

This is already a very tight deal. And I was never sure exactly what a measely $250 mm in IPO money was going to do to help, when each project costs $2 billion, and takes fifty to a hundred million and years to develop. I’m thinking they need some real Total style money in this one to win.  But at this time in my reading, I’m beginning to think I have no guts.

Time to think about upping my game again.  My partners will be glad to hear that.  They think I’ve gotten a little risk averse.