Taking a privately held automobile company, building materials company, or fuel cell company from lab to mass-market takes enormous amounts of capital. Hundreds of millions of dollars. Venture firms are the traditional source of this capital. Of course, these days, federal and state governments play an increasingly important role.
Advanced Equities (AE), sometimes referred to derogatorily as a "bucket shop," is a source of funding that venture firms use to fill in the gaps in later-stage financing. AE acts as follow-on money and has little actual domain experience and so rarely plays an operational role at the firm. They call themselves a "Venture Capital Investment Bank."
AE's pitch is that they allow high-net-worth individuals (i.e., wealthy people) to participate in the high-risk, glamorous world of venture capital investing. Despite a sometimes-shaky reputation, AE is aligned with a number of top-tier VC firms, such as:
- Apex Venture Partners
- Benchmark Capital,
- Khosla Ventures
- Kleiner Perkins Caufield & Byers
- New Enterprise Associates
Collectively, that stellar list of names manages billions of dollars.
AE just established a fund -- 2010 CleanTech LLC -- to provide their clients the chance to invest in Bloom Energy, Fisker Automotive and Serious Materials.
The fund breaks down as follows:
- 40% series A-1 preferred shares of Fisker Automotive
- 40% series D preferred shares of Serious Materials
- 20% series F preferred shares of Bloom Energy
On the surface, this appears to be a reasonable way to raise capital for a late-stage startup. And a good way to summon more capital for a VC investor without a pesky new board member. But Advanced Equities, as Michael Kanellos reported here, is a red flag for some investors. Still, AE is not going after money from grandma. Investors typically have to have $1.5 million in liquid assets to participate.
I have read literature in the past from AE that tends to dwell on the upside of the startups. The danger is that AE's clients invest in startup firms without an understanding of the severe risk profile attached to these VC-backed technology firms that aspire to scale big and fast in the energy field.
The upside, of course, is that it allows others to get the kind of returns traditionally reserved for the good ol' boys in the VC and hedge fund circuit.