Why Mascoma's Shaky IPO Is Lehman's Fault

If you want to know how the credit crunch is still crunching America, look no further than the prospectus for the upcoming IPO of biofuels company Mascoma.

Mascoma, which has no ticker symbol yet, filed to go public Sept. 16, reporting that it had $15 million in sales last year, lost $22 million, and wants to raise $100 million. The company has pledged pretty much all of its assets to lenders to keep itself in cash this far, and it plans to use money from government grants and corporate partners to build its first refinery for ethanol made from wood chips. It's not a pretty prospectus: Mascoma's auditors have questioned its ability to remain a going concern, and its debt carries interest rates as high as 11%. This is all to make cellulosic ethanol, a fuel whose commercial viability many experts question.

The trouble is, Mascoma's plant was supposed to be virtually built by now. The company's plan in early to mid-2008 was to leverage a grant from the state of Michigan to get debt financing, but that never did happen because the markets for energy-project finance closed after Lehman Bros. collapsed. The company has been scuffling since. Even now, the prospectus doesn't name the partners that will finance its plant. You can argue that this is markets in action, as a risky technology doesn't get funded. But the same panic spread through other technologies, too, helping force the government to step into deals like the $535 million federal loan to now-bankrupt solar-panel maker Solyndra and the factory where Tesla Motor (Nasdaq: TSLA) will make its next-generation electric car. Its chilling effect on even corporate and strategic investing helps explain problems that afflict other biofuel-related recent IPOs like Codexis (Nasdaq: CDXS). Without the plant, though, Mascoma is miles from sustainable profits.

More disturbing, perhaps, is the silence about Mascoma that has emanated from venture-capital firm Khosla Ventures, the company's second-biggest shareholder. In an interview shortly before Mascoma filed, Vinod Khosla declined to talk about Mascoma, saying he wasn't on the board and isn't very close to the company. Khosla said the same thing when I talked to him in early 2009. He has put much more money into KiOR (Nasdaq: KIOR), a competing wood-based fuel maker that has a different process and produces a product it says resembles existing gasoline products more closely than cellulosic ethanol does. Khosla, who owns 17.5% of Mascoma and a controlling stake in KiOR, won't criticize Mascoma, but he will talk about KiOR all day.

Bad numbers, vaguely described growth financing plans, and a top shareholder who seems to be distancing himself? I'm not whipping out my checkbook. Fast-cratering IPOs like Solazyme (Nasdaq: SZYM) and Gevo (Nasdaq: GEVO) do plenty to show that biofuels investing is tough enough even for the best of breed. Mascoma is a lot less than that.