KiOR raises $150M in IPO, 30 percent below latest forecast

KiOR comes up 30% short of expectations in its IPO, but gets a $1.49B valuation as a pre-revenue company. Giddy times, or is the IPO window closing?

In Texas, advanced biofuels pioneer KiOR sold 10 million shares at $15 per share in its IPO, which priced last night. The company, which will begin trading today under the symbol KIOR, becomes the fifth advanced biofuels company to successfully complete an IPO in the past 14 months, following Codexis, Amyris, Gevo, and Solazyme.

With the completion of its IPO, the pre-revenue company was valued at $1.497 billion, making it by far the most valuable, publicly-held, advanced biofuels company.

We’re raising $100M…no, make that $241M…no, make that $150M

In raising $150 million, the Khosla Ventures-backed pyrolysis pioneer raised 50 percent more than expected at the time of its initial filing, but well short of the $241 million potential the company had tipped in filings over the past month.

At the time of the company’s initial filing in early April, it aimed to raise $100 million, but its June 1 filing raised that proposed maximum to $200 million, and the total amount climbed to $241 million, based on selling 11.5 million shares (including over-allotments) at a price of $19-$21 per share.

In recent weeks, IPOs have begun to struggle across all sectors, with oil & gas equipment maker Stewart & Stevenson recently postponing its IPO, and companies such as Vanguard Health Systems coming in at 18 percent lower than its forecast of proceeds. Analysts have pointed toward a weakening the overall US economy.

More about KiOR

For a thorough look at what KiOR is and does – read our KIOR’s IPO: The Complete Digest Analysis.

What does it all mean? — The Digest’s Take

1. Weakening demand for advanced biofuels? Clearly, the company saw opportunities as recently as early June, in doubling its forecast of proceeds, that did not materialize. Was the $21 price too optimistic – or is the market simply losing its appetite for advanced biofuels at any price?

Look for two indicators – first of all, do the underwriters exercise their over-allotment rights and take an additional 1.5 million shares, raising $22.5 million more in the process. Second, how do shares perform in the immediate aftermarket this week – if the objection was price, we might expect to see strong demand propping up the price; if demand is weakening, we might expect to see light trading as early investors wait for better days on price.

2. Look beyond price, look at valuation. By any calculation, the company has heft. Based on technology purchased for $2.6 million in late 2007, it has a market capitalization of $1.497 billion. By contrast, Amyris has a valuation of $1.30 billion, Gevo is at $365 million, Solazyme is at $1.23 billion, and Codexis is at $335 million.

3. Complex offering. Analysts and observers in contact by the Digest noted the nature of the IPO, with Khosla Ventures retaining up to 70 percent voting control through the structure outlined by the company. Given the pre-revenue, yet-to-demonstrate-at-scale nature of the company’s operations – Khosla’s board control was raised by potential investors as a  chilling factor.

Now, that’s unusual – companies doing IPOs rarely put control-level share allotments on the open market, and IPO investors do not have expectations of board seats, and control of the company. Why is this being raised as a factor? We suspect that there is some apprehension that KiOR is being prematurely rushed out the door in pursuit of low-cost expansion capital.

4. Poor month on Wall Street. Greek debt default prospects, US budget turmoil, poor economic indicators, sluggish employment data – all of these are real factors weighing down the IPO market as a whole. Why did KiOR continue through to the end? In all probability, a recognition that pulling the IPO would not have produced better results later in the year, and might well have raised questions about the company’s viability.

5. The value of a demonstration at scale. In KiOR’s impressive array of offtake agreements and feedstock contracts – only one thing is missing – a demonstration of the technology at scale. The successful IPO will suggest to many that a demonstration may not be required in order to access low-cost capital, under certain conditions, or that a micro-demonstration may be sufficient.

Fermentation-based technologies may, for example, find themselves under more pressure to demonstrate at larger scales before going public – because the complexities of rate, titer and yield are known to change at larger and larger scale. That may put high-temperature technologies such as gasification or pyrolysis, at a comparative advantage in raising capital, if it can be shown that they have opportunities to skip the commercial demonstration stage.

6. Fuel markets only. KiOR is, somewhat distinctively in this crop of IPOs, a fuel-centric play. Are the margins sufficiently compelling for investors? Hmmm. Of the IPOs to date, Solazyme, Amyris and Gevo were based more on near-term opportunities in higher value chemicals markets. Those offers generally flew off the shelf. At the time of the Codexis IPO, that company was more fuel-centric, and it struggled, by comparison. Subsequently, Codexis has arranged to acquire broader rights to its technology so that it can enter the renewable chemicals markets). We’ll take this as a sign that investors are, broadly speaking, less convinced about the viability of new technologies in the fuel markets – simply given the low cost of fuel, compared to renewable chemicals. This story has no backstop – it’s fuel, or fuel.

7. Rush, rush. It has been prominently noted in coverage of the IPO that Khosla Ventures will not sell shares for up to one-year post-IPO, and both Khosla and Artis Capital have reserved rights to buy up to 3.5 million additional shares at the IPO price. Aimed at calming potential investors who feared that a hasty exit by Khosla said something about the company’s prospects? Probably.

For sure, the owners have been at pains, with Khosla committing not to sell any shares for a year after the IPO, to communicate that this IPO is more about a capital raise for commercial scale, than a liquidity event for early-stage  investors.

There’s been a rush on with this technology. In November 2007 , Khosla Ventures bought in to the old BioeCON technology (valued at the time at $2.6 million) for $4.4 million at $0.36 per share. By June 2008, the company sold another $10 million in shares to Khosla at $0.97 per share – and another $15 million came in via a promissory note. The company came back in Spring 2010 with a $95M capital raise at $9.80 per share – that’s a lot of added value based on the $30 million invested.