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Home > Nanotechnology Columns > Alan Shalleck-NanoClarity > The Nanotech IPO Window is Still Closed. A123 Systems was a One Time Event

Alan Shalleck
President
NanoClarity LLC

Abstract:
I'm going to disappoint those nanotechnology senior executives and VC's waiting in the wings to IPO but the general market for nanotech initial public offerings is not yet open - even in the after wash of A123 Systems' spectacularly successful IPO this past month. Despite excessive "dot com era" underwriter hype of "new opportunities", the IPO market remains very tightly shut for high tech offerings that have few sales and no profits … i.e. most nanotech based companies.

October 15th, 2008

The Nanotech IPO Window is Still Closed. A123 Systems was a One Time Event

The Nanotech IPO Window is Still Closed.
A123 Systems was a One Time Event
By
Alan B. Shalleck
NanoClarity LLC.
October 2009

I'm going to disappoint those nanotechnology senior executives and VC's waiting in the wings to IPO but the general market for nanotech initial public offerings is not yet open - even in the after wash of A123 Systems' spectacularly successful IPO this past month. Despite excessive "dot com era" underwriter hype of "new opportunities", the IPO market remains very tightly shut for high tech offerings that have few sales and no profits … i.e. most nanotech based companies.

A123 Systems had the perfect formula for a nanotech/green/energy storage IPO. Even two weeks later, investors remain enchanted. A123's stock has remained at 58% over initial price. Note that the company loses money and should continue to lose money until its major auto supply contracts begin … if they eventually do. Clearly, the A123 stock price is built on cash/share, hype, dreams and hopes, not on projectable hard economic profit data. Possible shades of the Dot Com era in the Green/nanotech world?

If you talk to investors and to the institutions, you would find that the A123 Systems offering was a very special situation, (as I predicted in this column last year), and the timing of the effective date was both extraordinary and lucky. After an entire year as a "red herring", A123 Systems went public during an exuberant "up period" in the market this year, when all institutions were packing their end of quarter statements and when day traders and stock speculators were enjoying an illusionary summer stock market rise reminiscent of the late 90's.

Nevertheless, and not unexpectedly, during the last month I've received many calls from senior nanotech (and even green company) executives inquiring as to whether (in my opinion) the IPO market window was opening "a little" for them and whether their company could slip through the window as did A123 Systems. Unfortunately, there is no opening to slip through.

On review, I did not expect such a spectacularly successful A123 Systems IPO. Unfortunately, that success masks the continuing hard-to-find-venture-money reality of today's markets. Clearly, the A123 systems IPO is the unique financial event in 2009 for nanotech related businesses - with lessons for nanotech executives. As a model for others, A123 is terrific.

Here is what A123 IPO had that no other nanotech IPO candidates probably has: 1. MIT licensed technology (My alma mater so of course the technology is the best); 2. Goldman Sachs and JPMorgan Chase as underwriters, (as blue chip as any new IPO can get); 3. Major investments from potential purchasers such as GE; 4. Large amounts of stimulus "energy, storage and green transportation" development money from the Federal Government; 5. Possible major auto battery supply contracts from GM, BMW and Chrysler; 6. Significant contracts from the US Military for various battery storage applications; 7. Commercial product sales to identifiable customers in smaller initial markets; (Black and Decker) 8. Manufacturing plants in multiple locations so potential investors could "kick the tires." 9. An eight year history…The company had survived for over 8 years with significant private investors; And most important, 10. A123 conceptually was at the absolute heart of the Nanotech, Green, Energy and Transportation focus of the Obama Administration and most perceptive IPO investors.

Not another nanotechnology-based company has all of these attributes to use in selling stock to investors. The A123 is an IPO singularity - especially in this economic climate.

Two of the more practical lessons from A123 for the ambitious nanotech company are:

1. Existing Commercial Sales: (get them early but not in your major markets.) Although A123 was always targeting the larger storage application markets, it early on found a smaller market, the hand held tool market, to create sales, show gross margins, work out manufacturing, qc and field support solutions and to create a history of customer product use for investors to due diligence. "We first commercialized our battery technologies for use in cordless power tools. Since 2006, we have supplied batteries to Black & Decker, a leading producer of power tools. Our batteries are used in Black & Decker's 36, 18, and 14.4 volt power tool lines. (From prospectus.)

2. Significant Government R & D Money: (as much and as soon as possible.)
Most nanotech companies want to do it alone, or with private investors. They shun the gifts of government spending for philosophical and proprietary reasons. A123 did not have any concerns. (Neither does NVE-another public successful nanotech company) It has garnished a $250 million award from the stimulus funds. That alone had a significant affect with underwriters.


In conclusion, financing is still tight. The public markets are still not friendly to new technology ventures or nanotechnology IPO's. If you are having cash flow issues, they will continue because we are going to be in an economic trough for at least another year. Nevertheless, there are ways to find money. Get the stimulus funds. I have mentioned this every month for the last six. Only 30 % of the $800 billion is committed. Less has been spent. Look for other companies in complimentary nanotech areas and consolidate. More products going after more markets are good for both companies. Find a commercial product offshoot of what you are doing and start selling it. And last, find a large joint venture partner with deep pockets who likes what you have done to date and marry him.

Those are your financial options in October 2009. Be practical; not stubborn. Take what you can get and survive.

Alan B. Shalleck
NanoClarity LLC
www.nanoclarity.com


© NanoClarity LLC 2009


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