Opower’s Sale to Oracle Sheds Light on Venture Returns

By Yulia Chernova for WSJ Venture Capital

Even some of the most promising clean tech startups have trouble returning capital to venture investors

New Enterprise Associates, Accel Partners, and Kleiner Perkins Caufield & Byers may be finally exiting their positions in portfolio company Opower Inc., a provider of energy-efficiency software to utilities. But the exit isn’t nearly as great as once seemed likely.

The outcome speaks to the difficulty that even some of the most promising clean technology startups have had in returning money to investors.

Oracle Corp., said on Monday that it would buy Arlington, Va.-based Opower, which has been public for the past two years, for about $532 million. Oracle agreed to pay $10.30 a share, a premium of about 30% over Friday’s closing share price, but well below the company’s $19 IPO price two years ago.

The price tag represents a modestly positive return for venture investors who held on to the shares post-IPO. NEA had first bought Opower shares for $1.99 each in 2008, while Kleiner Perkins Caufield & Byers and Accel bought shares for $8.90 each in 2010, according to Opower’s IPO prospectus. MHS Capital was a large early investor.

NEA was still Opower’s largest institutional shareholder with about 9 million shares, according to Nasdaq.com, as of the end of December. Accel held about 2 million shares. Kleiner remains a shareholder, as well, according to Ben Kortlang, a partner at the firm. An NEA spokeswoman declined to comment. Other investors didn’t respond to requests for comment.

In a blog post in the fall of 2014, Jon Sakoda, now a general partner at NEA and a director on Opower’s board, called Opower one of NEA’s “biggest wins,” listing it alongside Groupon Inc., Tableau SoftwareInc., and Workday. Opower’s apparent success stoked venture interest in other startups, such as Watersmart Software Inc., FirstFuel Software Inc., Tendril Networks Inc., and Simple Energy Inc.

Yet public market investors didn’t quite see Opower as other “cloud software” companies it aspired to resemble. Its share price declined over time. Last week, when trading at $7.90, Opower’s enterprise value was equal to about 2.5 times its estimated 2016 revenue, according to Raymond James analysts, which is low compared with other software-as-a-service companies.

It turned out that selling into utilities is hard. Opower’s revenue increased about 16% in 2015, not quite the trajectory of a rocket ship. And that doesn’t bode too well for other still-private startups targeting the energy and utilities market.

Write to Yuliya Chernova at yuliya.chernova@wsj.com. Follow her on Twitter at @ychernova.

First appeared at WSJ Venture Capital