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Who will own Solazyme? Looking at the IPO.

| May 18, 2011

In California, we update you today on the latest from Solazyme’s proposed IPO. The company filed updates to its S-1 registration statement this past week, which can be found here.

Proceeds. Solazyme said “We anticipate that the initial public offering price of our common stock will be between $15.00 and $17.00 per share,” and expects to net $138 million at the mid-price for its shares, which would value the company at $919 million. Noting that the company has granted the underwriters an additional 1,496,250 shares of common stock to cover over-allotments,” proceeds from the IPO could be as high as $160 million, and take the valuation of the company to as high as $930 million.

Q1 2011 results. At the same time, the company reported that its losses in the first quarter of 2011 widened to $7.325 million, on sales of $7.742M, compared to a loss of $3.988 million on sales of $5.758M for Q1 2010. Expenses for Q1 2011 were generally in line with the average for the last nine months of 2010.

Who owns Solazyme? The largest holding, 13.9 million shares, belongs to the Roda Group, which would emerge with holdings valued at $222 million, post-IPO at the expected range. Braemar Energy Ventures holds 5.0 M shares, which would value at $80.3M post-IPO. Founders Harrison Dillon and Jonathan Wolfson will have holdings worth $66M and $65M, should the IPO price in the expected range, while entities associated with chairman Jerry Fiddler would have holdings of $58M, post-IPO, and Lightspeed Venture Partners would hold $45M in shares.

Dillon and Wolfson are each selling 300,000 shares in the IPO, which could net up to $5 million each.

In total, the 57 million shares in Solazyme would be divided as follows:

34.533M issued in capital raises
9.975M issued in the IPO
8.842M issued to founders Jonathan Wolfson and Harrison Dillon
1.847M issued to executives, outside directors
1.83M issued to others

The returns in the game. Let’s look at the potential returns for early-stage investors who correctly identified Solazyme’s promise, and took the risk, should the Solazyme IPO price as expected.

Series A
7.746M shares issued at $0.39
Cost to investors: $3.0M
Post IPO value: $123.9M

Series B
8.581M shares issued at $1.01
Cost to investors: $8.7M
Post IPO value: $137.3M

Series C
11.431M shares issued at $5.04
Cost to investors: $57.6M
Post IPO value: $182.9M

Series D
6.775M shares issued at $8.86
Cost to investors: $60M
Post IPO value: $141.8M

Buy or sit out the IPO?

In March we wrote: “IPO or no-IPO? We see this as a no-brainer. The share valuation? Well, that will depend on the number of shares they are offering. Their latest capital round, last year, valued the company at $8.86 per share, at a time when the company was internally valued at $187 million. and that internal value has shot up by 171 percent since then.”

$16 per share is not a long-term valuation.

Ultimately, we believe bio-based energy and chemicals companies will need to reach the $5 billion revenue threshold for long-term survival – the oil industry records $3.8 trillion in annual sales of crude oil alone – and bio-based companies play in value-add markets as well as commodities, and stretch beyond oil into agriculture, food, HBA products and more. Ultimately, at oil company margins and price-revenue ratios (see Shell’s data), survivor companies, we believe, will have a minimum value of $2.74 billion. So there’s around a 66 percent “not going to make it to prime time” discount on Solazyme, the way we see it.

Qualified analysts will weigh in on the viability of the investment. For us, that’s a lot of upside for the investor, even now.

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