VCs Weigh in on What Tesla Means for Exits

For venture capitalists, and cleantech investors in particular, Tesla’s IPO was a watershed moment. Below are comments from several, who sent in their comments about yesterday’s offering and whether it marks a shift in tides for public market exits.

Jim Watson, managing general partner, CMEA:

It is always good for the venture industry to have successful IPOs. We need positive outcomes for the public investor to gain trust in the process.  When a venture backed company goes public today it must have upside after the IPO or the public will continue to abandon the category.

This is much more about a new car company than cleantech. Most investors believe the auto industry is ready for even more disruption and an American entry with novel technology brings hope to the public investor. Tesla could be the start of this transition, or not! We will see.

Wal Van Lierop, President & CEO, Chrysalix

It is impressive to see Tesla price above its range and be up on its first day. Especially as this is a day on which all the international markets are sharply down. It is even more impressive knowing how difficult the IPO market has been of late and how many companies have withdrawn their IPO plans. Clearly the speculation is on a future buy-out of Tesla by a strategic company. However that may not be easy to achieve in the short term; in particular as many automotive companies are well underway developing their own in-house electric vehicles.

For other CleanTech companies not much will change. Only very good companies backed by strong IBs and analysts will be able to do an IPO. The market will look for:

– strong performing companies (solid revenues, pipeline and margins)
– limited technology risks
– realistic valuations
– proven management teams
– strong syndicates preferably with some strategic investors, and ongoing support from them.

And even then: any realistic exit plan should include strategic acquirers. Our expectation is that M&A transactions will dominate the exits in this sector more than ever.

Rob Day, partner, Black Coral Capital

I was very glad to see Tesla do well. I’ve seen complaints about it going out too early, but it does seem from the outside like a good
company with a compelling story. Low risk? Absolutely not. But I’m hoping they do well. Especially because this sector needs more success stories.

I just hope VCs realize that stories like Tesla, big capex and somewhat still risky at exit, will be exceptions, not the rule. Not to
tar Tesla with this brush, but too many VCs have been hoping that their companies can IPO early, before they’re profitable. This isn’t
1998.  And it won’t be anytime soon.  Then it was sock puppets and eyeballs. This time it’s fabs and negative margin beta units.

But seeing Tesla do well does help the exit window for others, it’s proof that investors are still hungry for compelling cleantech stories
to back.

Eric Straser, partner, MDV

Paraphrasing from a phone call, Straser says that he was greatly impressed by the quality of execution for the IPO, but that this early in the offering, it’s difficult to gauge the quality of investors. Given that its much-ballyhooed $50,000 electric sedan won’t be available for another couple of years, investors will need to be very patient to determine if Tesla can deliver on its promise. Currently, it’s unclear whether investors are buy-and-hold long-term types or simply looking for a profitable flip.

Ira Ehrenpreis, general partner, Technology Partners

The cleantech industry is an unprecedented time.  Never before have we seen entrepreneurs, corporates, governments focused on innovating and creating the green economy of the 21st century.  Tesla is a poster child example of an entrepreneurial technology company paving the way to revolutionizing the automobile industry.

Jim Kim, Khosla Ventures

While I’m happy that another venture backed cleantech company has gone public, I wonder about the long-term profit potential of Tesla.  A lot is riding on successful launch and economies of scale from their next product model.  I am actually more excited about public offerings from other companies in the cleantech pipeline.  Fundamentally, we need this sector to succeed and I expect the next “Google” to come from cleantech.