In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.
The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.
According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.
Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone.
Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.
Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.
*Client registration required