The Cleantech IPO Window – Closed for business?

IPOs are struggling, all across cleantech – and the biofuels IPO queue is long and tiring.

Why Kiwano countries may be in your future. And, what is a Kiwano country, anyway?

So, amidst all the legislative and policy hoopla last week for advanced biofuels, including winning funding for an energy title in the US Senate’s Farm Bill and the release of the US Bioeconomy strategy, Enerkem’s IPO skidded to a halt and was withdrawn.

Sure, it was very early stage – their first commercial wasn’t complete, the company wasn’t producing much in the way of revenue, profits are a long way off. They were producing methanol, not yet ethanol, at demonstration scale.

But the MSW-to-ethanol path was so attractive, and with partners like the DOE, the state of Mississippi, and the Alberta provincial government, and strategic partners and investors like Waste Management, Enerkem was widely considered one of the gems in the IPO queue.

Tough month for clean tech IPOs.

It was a really tough month for clean tech in the IPO market. A solar thermal technology, BrightSource, pulled out on April 11th. Luca Technologies, with its natural gas harnessing microbe, pulled out April 23rd after earlier revising its target downward from $125M to $100M. Only Enphase, a solar microinvester technology, went ahead and raised $51 million in an offering it has filed hooping for $100 million.

So, four technologies from different sub-sectors of clean tech – all falling well short of goal, three of the four pulling out and the fourth raising half of its target.

What went wrong for Enerkem?

According to the Digest’s sources, the Enerkem offering had three key targets – the retail sectors, the Canadian institutional investors and the US institutional investors, with the last being the most important. Our information is that the first two sectors came forward generally in line with tempered expectations, but that the US institutions, by and large, shut the door on the clean tech IPOs.

Concerns? Well, the usual concerns about technologies that are essentially pre-revenue and burning cash. Added to that, a poor elongated post-IPO performance by a number of heavily-promoted and subscribed offers that came out earlier. And, what perhaps was the coup de grace, rampant policy uncertainty in the key US market over supports for the emerging clean tech markets such as renewable power and fuels.

Enerkem’s methanol to ethanol step

Enerkem, of course, has the added challenge of showing that its methanol-to-ethanol pathway can work, feasibly and at scale. It’s real chemistry – processes have been known for a long time – but they have a novel pathway that was supposed to open up potential for bringing down the costs to work for making fuels, which are sold for a lot less than chemicals, on the whole.

Back in 2009, a patent app from the Enerkem team showed the path they may be taking. The patent summary reads:

A process for converting methanol to ethanol which comprises reacting methanol and carbon monoxide in the presence of a catalyst to produce a product comprising at least 25 mole % methyl acetate and, in some instances, acetic acid. The acetic acid then is reacted with at least one alcohol to produce at least one acetate selected from methyl acetate, ethyl acetate, and butyl acetate. The at least one acetate (if produced) and the methyl acetate produced as a result of reacting methanol and carbon monoxide then are hydrogenated to produce ethanol. Syngas may be produced from biomass to produce all or a portion of the methanol, hydrogen, and carbon monoxide requirements for the process.

In other words, a path is there, but its somewhat more complicated than “please pass the catalyst, Mom.”

Is the window closed? Shut tight?

Elsewhere in the IPO queue, companies backed by Waste Management with catalytic processes, like Fulcrum Bioenergy — or Mascoma, backed by Valero and a host of prominent VCs — might well be quaking. There’s not a huge amount of added wind in their sails, compared to Enerkem. Yes, Fulcrum produces ethanol without the methanol step. Yep, Mascoma is a fermentation technology with a lot of demonstration hours to support its economics.

But those lousy post-IPO experiences with the likes of Amyris and Codexis are haunting the market, and US policy uncertainty will now not be resolved until, at least, the Presidential elections in November. The kind of confidence-inducing investment that might push these technologies over the line would be a strategic investment that probably would finish off the first-commercial financing anyway, making it possible for the companies to come back to the market after they were revenue-producing and at-scale proven, if not yet cash positive.

Post-IPO performance for advanced biofuels

Here’s the chart of the big six advanced biofuels IPOs.

Overall, pretty dismal, but some trends to note. The big disasters are in the class of 2010 – Amyris, which withdrew guidance, and Codexis, which has changed out CFO and CEO in recent months. After repairing their houses, they may well zoom back.

Class of 2011? Well, nothing pretty, but each of Solzyme, Gevo and KiOR can address the risks inherent in their technologies through completing first commercial plants over the next 18 months. Gevo and KiOR, we’ll likely have the snarers before year-end, Solazyme probably in 2013.

Class of 2012? Overall, not doing all that badly. We’ll know more after the insider lock-up period expires – can the companies stimulate enough aftermarket demand to accommodate all the insiders who want or need to leave.

Meanwhile, Ceres’ performance has been OK enough that companies like seed-oriented SG Biofuels and Mendel Biotechnologies, not to mention Chromatin, must have just a little hope left in them that the IPO windows remains open for them later in the year and when they have advanced their stories and are market-ready.

Next steps for advanced biofuels

For sure, back to the strategics for help. Whether it is more capital from current investors like Valero or Waste Management, or added government funding (unlikely in these budget-constrained times) adding in help from other downstream investors who see the potential for the fuels in their own markets, that’ll be a question for the companies to explore over the next weeks and months.

Best bet – downstream markets with big ethanol targets, lots of waste, no grain to spare, organized capital, policy certainty, and oil companies that obey the policy center rather than spending as fast as they can to topple the government.

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The Kiwano - red on the outside, gren on the inside.

Kiwano countries – red on the outside, green on the inside

Where to look in these policy uncertain times? Think kiwano countries. Ah, the African horned melon, the kiwano or horned cucumber. Red and prickly on the outside, but green on the inside.

Red on the outside: Looking for state interventionalists, or even agrarian socialism, where you have a capital and policy in lockstep formation. Green on the inside –  clean tech focused and replete with cash.

Not a bad idea to look at countries where commodities and agriculture loom larger in their imaginations than in the industrial democracies in North America and the EU, where hardly an investor out there has stepped on a farm since grade school field trips.

Sovereign wealth-backed funds in those districts? A likely next step for the big bucks, for those ventures whose existing investors are fully tapped and needs large pools of liquidity.