EnergyBiz - November/December 2007 - (Page 33)

dimmed. But as with all things financial, there are always exceptions. Comverge and EnerNOC both launched successful IPOs last spring. The first thing companies looking to go public need to do is convince investors that the market for their product or service is large. “You’ve got to have a market that’s well north of a couple of hundred million dollars in potential value,” says Raj Atluru, managing director of Draper fisher Jurvetson, a leading venture capital firm and a lead investor in EnerNOC. Moreover, investors want to get in on the ground floor of a potentially high-growth sector, a market just on the cusp of emerging. Comverge and EnerNOC were well positioned on both grounds. Both companies are pioneers in moving demand response technology from an isolated, narrowly focused technique to cut energy use by end users to a broadly based system to manage peak demand without building additional capacity. Comverge generally targets individual residential customers, while EnerNOC focuses on large commercial and industrial users. Both offer utilities what is essentially a turn-key operation. They market the idea to end users, install, service and retain ownership of the hardware, and pay customers who sign on to the program. In return, they receive payments from the utility on a long-term contractual basis for the peak energy reserve they provide on a per-kilowatt basis. The road to IPO for both companies began with a vision. Leaders of both companies, independently, conceived of a new business model which, in turn, created a new revenue model. Comverge had been founded in the late 1990s as a conglomerate of Lucent, Scientific Atlanta and an Israeli manufacturer to sell demand response hardware to utilities, which then deployed it to residential customers who were willing to allow the utility to control their electricity use, particularly their air-conditioning and heating. New management in 2001 changed that model. Instead of selling hardware to utilities, Comverge redefined its product as a service, and sold demand response capacity back to the utility. The company called its product “virtual peaking capacity” and sold it to utilities as an economical alternative to contracting with third parties for gas-fired peaking capacity. EnerNOC, founded in 2001, did much the same thing on the commercial and industrial side. This new business model in turn created a new revenue model. Instead of selling hardware on a one-off basis, both companies entered into long-term contracts with utilities to provide guaranteed peak capacity. As a result, revenue streams that previously varied widely from quarter to quarter became much more predictable. But that strategy virtually guaranteed that both companies had to become public. “We had to get ourselves the credibility to deal with large utilities on an equal basis, and frankly, that meant becoming a credible, large public company,” says Robert M. Chiste, who took over as chairman, president and CEO of Comverge in 2001 and spearheaded the metamorphosis from hardware distributor to virtual peaking provider. Tim Healy, co-founder with David Brewster of EnerNOC, says, “We designed the company in the beginning with an eye towards becoming a public company, or, at least, a company managed in the manner that public companies are managed.” tHE In other words, the chief hurdle to becoming public companies was precisely story of the hurdle they had to meet to gain credibility with utility and grid operators: coMvErgE accountability and stability. According to Healy, “At the end of the day, utilities and want transparency and stability. Our business is entering into five- and ten-year agreements with them and they look at us as part of their overall resource planEnErnoc ning. They want to know, ‘What does the balance sheet look like? How healthy is By richard this company? Are they going to be here down the road when we’re still counting schlesinger on the resources they’re providing? Can we really trust them?’” The dramatically increased transparency demanded by Sarbanes-Oxley has Illustration by raised the bar for companies contemplating a public offering. “One of the toughest Mike Austin things for companies wanting to go public,” according to Atluru, “is being able to judge what the numbers are going to look like and forecast accurately what the growth rate is likely to be. As a public company you really can’t fudge your numbers. A private company doesn’t have to predict revenue within a cent or two; a public company has to do it every quarter.” The incremental costs of being a public company can range anywhere from $2 million to $4 million, according to Tim Woodward, managing director of Nth Power, a leading clean technology venture capital firm and a major early investor in Comverge. And that can easily represent almost 100 percent of the potential profits for some early stage companies. Comverge’s Chiste and EnerNOC’s Healy claim they were basically meeting Sarbanes-Oxley standards even before the decision to go public, but they still feel some increased pressure from the intense scrutiny any public company gets, especially from Wall Street. “Analysts micro-analyze every quarterly earnings call,” says Chiste. “That’s what they’re supposed to do, but sometimes it feels like they’re looking for things to penalize you on, rather than looking at the big picture and the growth.” the market for initial public offerings of stocks began to sputter earlier this year, prospects for companies that wanted to go public www.energycentral.com E n E rgyB i z 33 http://www.energycentral.com

Table of Contents Feed for the Digital Edition of EnergyBiz - November/December 2007

EnergyBiz - November/December 2007 Contents Continental Grid Vision Needed Readers’ Views and Opinions Next for National Grid Clearing the Air The Need for Nuclear Energy Trade Status Report The Innovators California On The Leading Edge FERC Sparks Change Getting Coal Right Leadership in Times of Turmoil Innovation Delivers Return A Tale of Two IPOs LNGs Bright Prospects Generation Techologies The Age of Superconductors Leaders with Vision Get Ready for Plug-in Hybrids Betting on Batteries Cost of Decarbonizing Nuclear Helmsman – A chat with Dale Klein, Chairman of the U.S. Nuclear Regulatory Commission Global Energy Snapshot; Low-Income Energy Help; IT Spending Robust; The Greening of State Regulators; Generating Support Simplifying Offshore Wind Regs Chasing Construction Costs Energy Agency Sets New Course Deregulation Means Higher Rates Go-To Staffer Nightmare in Manhatten

EnergyBiz - November/December 2007

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