The problem with Silver Spring

Yesterday, Silver Spring filed their S-1, announcing a $150 million initial public offering. With over a billion dollars in multi-year contracts, the Company has been a rumored IPO candidate since 2009. However, even today, it faces some significant challenges:

• No line of sight to profitability
• A hardware play with 79% negative gross margins, and no clear walk to positive gross margins
• Revenue recognition issues
• A market that is seeing increased competition from the "dumb meter" companies such as Itron and Landis+Gyr - which are winning more of the new awards
• Long sales cycles with customers that are questioning the value proposition of the product

Many of these issues can be resolved, and having backlog of over a billion dollars is a huge confidence builder in the business model. But there's a saying: "you can only go public once". If you go too early, your investors will get burned and the public markets will not be quick to buy into your story again. Public markets are also fatigued with cleantech manufacturing plays that are gross margin negative and burning hundreds of millions of dollars of cash - as evidenced by the performance of A123, SemiLeds, and others.

So why not wait?

Well, after raising $400 million, Silver Spring has likely tapped out it's ability to raise private capital. The Company is using the public market as a source of venture funding. The IPO is less a way to get an exit for its investors (although that is also at play here), and more a way to fund the company to profitability when no one else will.

I want Silver Spring to succeed. It will be good for everyone (cleantech space, smart grid companies, cleantech VCs, etc) - which is why I'm dismayed at the bankers/investors pushing another IPO which will be facing an uphill battle from the get-go.

Time will tell - and as always - I could be completely wrong.