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All dressed up and nowhere to go. That’s the story of 10 biorenewable companies waiting to go public. The biorenewable companies – in the business of producing advanced fuels and specialty chemicals from waste and feedstock – have plans that call for raising over $1 billion through IPOs for an industry that offers tremendous economic and environmental gains but is also mired in Washington’s energy controversies. But profitability for most of these companies is far away. They need money to scale up, some to construct manufacturing facilities that will allow them to offer products.
But investors are spooked. With market volatility high and equity markets roiled by uncertainty and turmoil, they are not about to invest in an industry that is behind schedule and possibly years from real profitability.
Lawyers familiar with the IPO process say that a combination of industry conditions and regulatory delays may force the biorenewable companies to significantly delay their offerings or scale back their plans, all the while remembering that countries such as China and Brazil are subsidizing their indigenous industries that could easily dominate these markets.
Late in September Fulcrum Biosciences, a Pleasanton, California-based maker of biofuels from solid municipal waste, filed to go public, with plans to raise $115 million, just a day after Elevance Renewable filed for a $100 million. The parade started early in September when Mascoma, which makes biofuels from genetically modified yeasts and other microorganisms, filed to go public with an offering that could raise up to $100 million.
Earlier this year biorenewable companies were riding high. Gevo, Solazyme and Kior all went public, all initially trading above their offering prices. And it was the success of the three that encouraged a slew of others to test the IPO waters. Over the next few months Genomatica, Renewable Energy Group, Enphase Energy, among others, all filed to go public.
But suddenly the economics of the biorenewables have come unglued. Oil prices, one of the primary drivers of investing in biorenewables, have fallen from their highs of $114 a barrel in April. And the prices of renewable feedstocks, a key element in the production of many biorenewable products, have risen. What has also gummed up the works are changing fundamentals – the decline of large governmental subsidies and increased governmental support. As the global economy flounders, government interest – in supporting and subsidizing biorenewables, both at the federal and the state level – has understandably dropped.
The US government’s unwillingness to guarantee loans to solar power makers Solyndra and Solar City has simply heightened the anxiety and uncertainty around cleantech in general.
Venture capitalists haven’t helped either. They have raised billions of dollars to invest in cleantech and have poured in hundreds of millions of dollars, but they have understated the financial picture and the difficulties of execution without giant government subsidies, loan guarantees and private sector partnerships.
Take the example of Mascoma, which in September filed to sell 4 million shares to raise up to $100 million. The six-year old Lebanon, New Hampshire-based maker of fuels from biomass is well-backed: its venture backers include Khosla Ventures, Kleiner Perkins Caufield & Byers, Flagship Ventures & General Catalyst Partners. Indeed, in its six years of existence the company has taken in an estimated $300 million or so in equity, debt and corporate investments. But the company is losing money – a net loss of $25.4 million on revenue of $15.5 million in 2010 – and most of its revenues are from government loans and grants. Mascoma still has a long way to go. And the venture capitalists and private equity funds already invested in the company aren’t eager to cough up even more.
