Delay in Silver Spring IPO called smart

Silver Spring Networks has delayed its much-anticipated IPO until the fourth quarter of this year, according to two sources familiar with the company, as first reported last week on peHUB, an online affiliate of PE Week.

The VC-backed smart grid company was expected to file for an IPO last month and to price sometime this summer, according to numerous reports, including Dow Jones, which reported in February that Silver Spring had chosen a banker in preparation for its public market debut.

The Redwood City, Calif.-based company—which has raised about $275 million in venture funding from Google Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital—is believed to have postponed its offering partly because of negative publicity that engulfed PG&E, one of its biggest customers, in recent months.

Requests for comment to numerous investors of Silver Springs were not returned as of press time.

The postponement is a smart move, says IPO consultant and former investment banker Lise Buyer, who helped take Google public in 2004.

“There’s never any point in racing to get a deal done, and while I suppose in this case there are advantages to Silver Spring being the first [smart grid company] to go public, with so many big partners and probably an untold number of moving parts, it’s much better to handle all these issues while they still have the luxury of being private,” she says.

A 700-page report released by PG&E two weeks ago shines a light on its recent problems with smart grids. Poor smart meter performance by St. Louis-based ESCO Technologies, an earlier partner of PG&E, caused roughly 5% of the meters’ recipients to experience overly high bills, according to the utility.

PG&E later switched to the smart meters of Silver Spring, but the company wasn’t able to deliver product as fast as PG&E needed. PG&E also failed to address an outpouring of anger from its smart meter customers, a mistake it has since worked to remedy, which included issuing a public apology.

“This is not about statistics. . . I don’t believe we did a good job of seeing the world through the lens of the customer,” said Helen Burt, chief customer officer at PG&E, at a press conference earlier this month.

Whether Silver Spring’s IPO delay will have a chilling effect on other would-be issuers remains to be seen. Bill Gurley, general partner of Benchmark Capital, is nevertheless anticipating a glut of IPO filings in the second half of this year.

“I expect that unless something dramatically changes in the next six months with the overall market, you’re going to see quite a bit of Silicon Valley-backed companies filing [for IPOs],” he says. “That’s consistent with what I’m hearing from bankers and lawyers.”

Benchmark doesn’t have any companies currently in registration, and Gurley declined to comment on which portfolio company might file soon.

However, the delay of Silver Spring’s IPO looks like a smart choice, given the recent woes of VC-backed A123 Systems Inc. (Nasdaq: AONE).

The lithium-ion battery maker enjoyed a splashy IPO last September, when its shares, offered at $13.50, jumped 50% in their stock market debut to close at roughly $20. Just last week, when A123 disclosed that it had missed analysts’ first-quarter expectations, its share price dropped to $9.60.

A123 Systems—which had raised more than $240 million in funding from North Bridge Venture Partners, Qualcomm Venture Partners and more than a dozen other investors over 11 rounds from 2001 to 2009—now boasts a $1.04 billion market cap, which is roughly half what it was in September.

What happened to A123 is that no one knows how the electric vehicle landscape will evolve over the next five to 10 to 20 years, says senior research analyst Ben Schuman of Pacific Crest Securities.

“Investor appetite has dried up over that kind of uncertainty and risk, given more general market volatility,” he says. “People are feeling risk averse.”

Nevertheless, analysts expect Silver Spring’s eventual IPO to perform on its own merits, and for the performance of other issuers to do the same.

“One filing doesn’t turn the market around; you need momentum in there,” says John Fitzgibbon, publisher of IPOScoop.com, which tracks the IPO market.

In reference to the dot-com days, when online auctioneer eBay went public in September 1998, Fitzgibbon says that it took another six to eight weeks for other Internet deals to dribble into the market.

“And they weren’t flying on one wing. By then, they had a surging stock market that made it possible,” he says.