A123 (AONE) jumped 50% on its first day of trading closing at $20.29. Good news for the company, good news for its backers, right? Not exactly.
PE Hub says the venture capitalists that put big bucks into A123 are getting a small multiple from the offering:
Prior to its IPO, A123 raised more than $240 million from more than 15 investors over 11 rounds since 2001, according to Thomson Reuters (publisher of peHUB).
The company’s six largest VC shareholders held a combined 32.9 million shares worth $668 million based on today’s closing price. That same group invested at least $161 million in the company, according to Thomson Reuters, which means the group saw an unrealized return multiple of 4.14 on its investment. (VC shareholders typically can’t sell their stock for at least six months after an IPO.)
A123’s largest shareholder is North Bridge Venture Partners, which holds 8.86 million shares (or 9% of the total) valued at about $180 million today. North Bridge invested an estimated $41.3 million over seven rounds, according to Thomson Reuters, for a paper return multiple of 4.35.
Further, by the time the VCs do sell the stock, the multiple could be lower. We’re still not certain why investors are so excited about the company. We’re not alone. Rick Pearson at TheStreet.com writes:
The company increased the deal size by almost 10% even after raising the offering price by 50% from the initially indicated range. Like China Bak Battery (CBAK Quote), A123 is a money-losing company trading on an excessively high valuation.
Profitable alternatives such as Advanced Battery Technologies(ABAT Quote), China Sun Group(CSGH Quote), Hong Kong Highpower Technology(HPJ Quote) and China Digital Communication Group(CMTP Quote) all make for a better fundamental investment.
In evaluating this IPO, I am a very biased investor because I refuse to invest in money-losing companies. When a company is being well received by investors because its “losses are declining,” I don’t feel too bad about not being part of the IPO party.
A123 does have an impressive client list, including Chrysler and Black & Decker(BDK Quote). However, A123 has generated only $168 million in revenue since being founded in 2001. On revenue of $168 million, the company has lost $146 million since founding. I repeat, on revenue of $168 million since 2001, the company has lost $146 million.
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