A123 Succeeds and the Real Financiers March On

Well, the A123 IPO has to be considered a success, certainly for the company and for those who participated in the offering.  The company expected to raise about $200 million—somewhat short of the matching funds required to access the ARRA and DOE loans.  Because of the demand from public equity investors, the size and price of the offering were raised and the company ended up more than doubling its initial expectations, exceeding the matching funds required for the ARRA and DOE money.

The stock rose almost 50% from its offering price on the first day of trading. If one participated on the IPO one is up about 50%. If you bought it on the close at the first day you are about flat, almost the same as the S&P 500 for that period. That the deal got done with a bit of a splash is good news for the IPO market, good news for the M&A market and good news for venture capitalists. Maybe it will encourage the VCs to put some of the reserves they set aside for the potential economic hurricane that was going to rain down on their portfolio companies into new ventures. I certainly hope so.

In the meantime the other real financier, the federal government, continues to put capital at risk.   The DOE agency, ARPA-e, the Advanced Research Projects-Energy, modeled after the DOD agency, DARPA, announced grants totaling $151 million to a variety of entities to fund very early stage technologies in the clean energy space. If you want to get excited about what can happen on the carbon reduction front, go visit http://arpa-e.energy.gov and read about the 37 high risk, but big ideas the government is backing. Arpa-e has another $250 million to put to work over the next year or so, and has 263 already fully-formed ideas to choose from.  It would be interesting to expose those ideas and the other 3300 less-well-formed ideas it has received to the venture capital community. Few will pass the rigorous screens of the seasoned venture funds, but the process itself could trigger an excitement and reinvigoration of the creative and competitive juices that the venture community can bring to bear when it looks beyond the valley (if you’ll pardon the expression).

Let’s recall the role Darpa played in seeding the last two venture cycles, microchips and the Internet.  Darpa is also playing a role in nanotechnology as well.  Even A123 in its early days was a beneficiary of military money.  On Point Technologies, an Army-backed venture fund managed by Arsenal Venture Partners (look it up!), was an investor in A123 in 2004, in its second round. For those military conspiracy fanatics, isn’t it a strange coincidence that A123’s headquarters are located in the old Arsenal building on Arsenal Street in Waltham? I like the conspiracy I see developing:  Our current Secretary of Energy, Dr. Chu, was part of a National Academy of Sciences committee calling for the creation of Arpa-e.  Three Senators, Clinton, Reid and Bingaman, proposed establishing it in early 2007. It was created but not funded during the Bush Administration. Steven Chu became Secretary of Energy and the financial crisis led to funding through ARRA of Arpa-e. Whatever works.  Let’s just get on with it before these big ideas find a home away from home.

This entry was posted in Venture Capital and tagged , , , , by Jack Rivkin. Bookmark the permalink.

About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

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