Tesla's IPO: A New Test Drive for the Old VC Model

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Tesla Roadster Courtesy of Tesla Motors

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Before its IPO, Google was profitable

Tesla has already tapped private investors and the federal government for hundreds of millions of dollars in financing (including more than $200 million in six rounds of equity financing and $465 million in low-interest loans from the Energy Dept. A public offering could give it an important new financing channel.

Using an IPO simply to raise money isn't exactly a new strategy. As The New York Times put it in an editorial following Google's (GOOG) 2004 IPO: "Some of the dot-com-bubble darlings…famously turned to Wall Street to raise cash merely to burn it." Tesla, A123, and other ventures trying to break into large-scale manufacturing need money to set up factories and crank out physical goods for sale, among other things. It's worth remembering, however, that they haven't yet proven themselves profitable. Google had done that by the time it went public.

Public offerings are not just about financing. They're also branding events, as panelists at the AlwaysOn Summit at Stanford noted this summer. A successful IPO for Tesla could serve to boost the credibility of its brand and could also cast a halo over other green-car startups. On the flip side, if the stock performs poorly, it could detract from Tesla and other electric carmakers' efforts to establish themselves in the mainstream. Over on The Truth About Cars blog, Edward Niedermeyer writes that Tesla's existing brand—that of a Silicon Valley native—could be a boon on the public market.

"The best argument for a successful Tesla IPO is the popularity of its electric roadster among the Silicon Valley elite," Niedermeyer writes. "IPOs are rarely rational phenomena, and local homerism could just provide Tesla with sufficient capital to take its Model S to market."

Worth $550 million or $1.24 billion?

A successful Tesla IPO could also provide a branding boost for government bets on venture-backed car startups as creators of green jobs, from the federal backing for Fisker Automotive on down to local incentives for V-Vehicle in Louisiana. As Pascal Levensohn, founder of Levensohn Venture Partners and a National Venture Capitalist Assn. board member, told us in September: Jobs are typically lost when companies are acquired instead of going public, while IPOs help create jobs.

In June, analysts for the research firm NeXt Up put together a report on Tesla for SharesPost subscribers, valuing Tesla at $1.05 billion. Last month the firm upped that valuation to $1.24 billion, or an estimated $4.21 to $4.93 per share. Six months ago, however, Daimler took a stake in Tesla at a $550 million valuation, so NeXt Up's valuation may be generous.

Whether or not Reuters' sources are right that Tesla will register with the Securities & Exchange Commission within a matter of days for an IPO, we may have quite a while to wait before the company actually goes through with a public offering, letting us see first-hand how the event reverberates through the industry. Investor Dolezalek said back in September that the startup wouldn't be going public until late 2010 at the very earliest "if the market stays the way it is today."

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