A123 Didn’t Deliver Much Juice to VCs
It may have delivered a jolt to the IPO market, but battery maker A123 Systems didn’t produce a high-voltage charge for its venture backers.
A123 priced its shares at $13.50 this morning and they shot up to $20.29 by the end of the day, an increase of more than 50 percent. That was the best second-best debut of the seven VC-backed companies that have gone public this year and the second-best debut for any IPO on a U.S. exchange this year. (Updated: OpenTable rose 59% on its first day.)
Despite the impressive performance, the company’s backers didn’t see a huge return because they invested such a large amount in A123. (See table below)
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.
(Note that Thomson Reuters sometimes estimates how much a VC has invested in a round when an exact amount isn’t available. For example, if four VCs invest a combined $10 million in a round and none discloses exactly how much it invested, Thomson Reuters estimates that each invested $2.5 million in that round.)
See the table below for a rundown of the five other venture investors with stock holdings disclosed by A123.
It is unclear how well A123’s other venture backers did, since the company didn’t disclose the stock holdings of any investors who hold less than 3% of its shares. Those 11 investors include YankeeTek Ventures (which invested in A123’s first round along with North Bridge and Sequoia), Boston University, CMEA Capital and MIT.
| VC Shareholders for A123 | |||||
| Backer | Shares | % ownshp. | Share val.* | Est. VC | Est. multiple** |
| North Bridge Venture Partners | 8.85M | 9.0% | $179.8M | $41.3M | 4.35 |
| GE Commercial Finance | 8.28M | 7.1% | $168M | $55.4M | 3.03 |
| QualComm Ventures | 5.35M | 5.5% | $108.6M | $20.7M | 5.25 |
| Motorola Ventures | 4.84M | 4.9% | $98.3M | $15.6M | 6.31 |
| Sequoia Capital | 2.89M | 2.9% | $58.6M | $20.8M | 2.82 |
| AllianceBernstein | 2.71M | 2.8% | $55M | $7.6M | 7.23 |
| * Based on closing price of $20.29 on 9/24/09. | |||||
| **Multiple is theoretical. VCs can’t sell shares for at least 6 months | |||||
| Sources: Thomson Reuters and A123′s prospectus filed on 9/23/09. | |||||
| Compiled by Lawrence Aragon | |||||
Related posts:
Michael said on September 25, 2009
http://pedatacenter.com/pedc/blog/13
Nice breakdown of shares per financing round.
George said on September 25, 2009
I am an investor in A 123 Systems, and made 20 X on my investment. However, I came in very early, about 15 years ago, through one of the many AONE acquisitions.
I will add that the numbers in your table are WAY OFF the mark, but will let those investors comment (which they will not, in my view.)
Further, as I may sell all/some/none of my shares now, my real return is unknown.
I will hold some of my investment as I believe that in a number of years (you fill in the number), the price of AONE will be higher (again you fill in the number.)
As to the return for the VC LPs, their return comes of course when they receive shares or proceeds thereof. What do you estimate the return for GE? Monetary plus window on technology?
Jack said on September 25, 2009
At least one of your estimates is way off.
Alex Haislip said on September 25, 2009
@ George and @Jack: It’s not really useful to say the numbers are off and then not provide a correction or any math help. Why don’t you guys man up and tell us where we missed the mark instead of just taking shots?
Lawrence Aragon said on September 25, 2009
George and Jack, thanks for your comments. I would love to talk to either of you to get your perspective. I’m not interested in disclosing your identity. Do you have any documentation you could make available to me? My email is lawrence[dot]aragon[at]thomsonreuters[dot]com.
Fred said on September 25, 2009
Even though the return isn’t a traditional “VC” multiple, the absolute return for North Bridge is very impressive. Typically a VC fund seeks to do a 3-4x gross multiple on the fund. With a lot of smaller investments, roughly a third of the investments returning little to no money, the winners need to have much larger multiples. With a large investment like this though, a 4x multiple works just fine….
Lets Not Forget IRR said on September 25, 2009
Great work by Larry at taking a SWAG at the numbers. We obviously don’t know what the final outcomes will be when investors are able to sell, but this helps frame the discussion around the new definition of a “homerun”. Clearly it ain’t 100X and it ain’t 10X either.
The missing data from larry’s work is the IRR information. If George (comment above) in fact made a 20X return (congrats!) let’s not forget his 15 year holding period. A quick look at a handy IRR calculator (http://www.collercapital.com/assets/html/press_room/IRR_card.html) would show his investment yielded about 22-23% IRR over this period.
So 20X is a great number to brag about, but put in perspective, not sure ANYONE would take 22% return for the MOST risky, illiquid, ulcer-inducing, high-overhead investment one could ever make.
Beware of the IRR!