Date: Jun 16, 2014 Author: Michael Kanellos Source: Forbes (
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Aspen Aerogels, which makes what arguably is the world's best insulation, has flopped in a hot market.
The company, which produces a super insulating material that leverages the unique properties of air, offered 7.5 million shares for $11 per share this week, below the anticipated $14 to $16 per share price. It is at $10.63.
What went wrong? On paper, it is an interesting company. Aerogels are essentially blankets of air pockets. Air doesn't transmit heat well, so a thin sheet can insulate like several feet of other types of insulation. (Aspen once sent me a square of aerogels about a centimeter thick. I put it directly on the flame of a gas burning stove and put my hand on the other side for about five minutes. The kitchen smelled like an industrial site, but I didn't feel a thing.)
Most of its revenue also comes from brown, not green, energy companies. Aspen believes 24 off the top 25 oil refiners use their materials and so do 19 of the top 20 petrochemical makers. Annual global spending on offshore drilling activities is projected to increase from $97 billion in 2012 to $170 billion in 2019: aerogels are used to wrap pipelines to ensure that oil keeps flowing, according to Aspen's S-1.
Aerogel!
Aerogel! (Photo credit: ImNotQuiteJack)
Unfortunately, Aspen is still losing money, likely one of the reasons the IPO was also pulled in 2011. Revenue has grown at an annual clip of 37% to hit $86 million in 2013, but cumulatively it has lost $333 million. (There's more in the S-1 here.)
Second, it is a manufacturing company. Eight to ten years ago, a hardware-based cleantech company could soar in an IPO. First Solar FSLR -2.27% had a better one-year performance in stock gains following the IPO (in terms of percentage gain) than Google. Now, investors prefer cleantech startups like Opower that focus on software. Tesla Motors TSLA +0.96% and SolarCity SCTY +0.86% revolve around hardware, but, as former VC Matthew Trevithick has pointed out, both serve consumers. So does Nest, he adds. Hardware companies that focus on selling to other businesses seemed destined to a harsh, low-margin existence.
Finally, it is a building material. While the building market accounts for 13% of Aspen's revenue, it is a difficult market. Building materials take inordinate amounts of time to perfect, contractors are consistently skittish about switching to something new, and advanced materials add costs. It can take years to build a channel. A whole host of building companies emerged between 2005 and 2008, just in time for the largest downdraft in construction in decades. Many banked on carbon regulations to help build their markets.
While new building regulations are finally creating a foundation for these kinds of technologies, it remains far easier and more direct to install LED lights or an advanced building management system. New windows, insulation or anything that requires major retrofits are going to be the last on the list.
