January 6, 2010 / 1:35 PM / 10 years ago

VC sees IPO promise for "quality" green firms

SAN FRANCISCO (Reuters) - Following a successful public debut of one of its companies last year, a San Francisco venture capital firm is now guiding two more of its green portfolio firms to raise money in the public markets.

U.S. President George W. Bush receives a briefing on plug-in hybrid technology from Dave Vieau, President and Chief Executive of A123 Systems during a demonstration of alternative fuel automobiles on the South Lawn of the White House in Washington February 23, 2007. REUTERS/Kevin Lamarque

CMEA Capital, an early stage investor in many green firms including battery maker A123 Systems that debuted successfully last year, is planning to brave the IPO market again with Silicon Valley companies Codexis and Solyndra.

“What A123 demonstrated is that the IPO market is available to companies that are very highly differentiated,” said Tom Baruch, CMEA founder and managing director, in an interview.

Green start-ups that have distinct technology, and have demonstrated that their business model works, have a good chance of attracting investor interest, both in the public and private markets, Baruch said.

With oil prices moving up steadily and the U.S. economy stabilizing, investors and experts are forecasting that 2010 will be marked by some of the more mature green start-ups testing public enthusiasm for companies that have big growth potential, but little profit.

A123, which has yet to make a profit, was CMEA’s first portfolio company to go public in nearly two years. In total, the firm manages seven funds representing investments totaling over $1 billion.

Solyndra, which builds thin-film solar tubes and secured $535 million loan guarantee from the U.S. government to build its second factory, filed for a $300 million IPO last month.

Codexis, which is working with Royal Dutch Shell on biofuel products, filed for an IPO last week.

Green energy was a small corner of the IPO market in 2009, and the deals had mixed results.

CMEA’s portfolio company A123, which makes lithium-ion batteries for the automotive market, had a smash-hit debut with shares jumping over 50 percent in their first day of trading in September. It has a market cap of about $2.3 billion.

On the other hand, Chinese thin film solar panel maker Trony Solar Holdings Co Ltd postponed its IPO indefinitely last month.

Baruch, who honed his early-stage investment skills at the Battelle Development Corp and then at Exxon in the 1970s, said financial markets were looking for “good quality opportunities.”

“For the last two years, investors have had their hands in their pockets,” Baruch said. “With the global economy loosening up somewhat, some of that money is coming off the sidelines.”

Baruch, however, does not believe there would be a deal rush this year.

“This is going to go very slowly,” he said.

In recent months, green technology companies have managed to raise more capital, from sources including venture capital, private equity, public equity, and debt funds.

According to London-based New Energy Finance, investment in green companies — from solar and wind power, other renewable energy, electric vehicles and energy storage — jumped to $25.9 billion in the third quarter of 2009 from just $13.3 billion in the first quarter of 2009.

Going forward, Baruch said he is especially bullish about the solar industry.

“The price of energy is moving up and that’s a very, very favorable trend for alternative energy,” Baruch said.

Reporting by Poornima Gupta; Editing by Tim Dobbyn

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