Smart Grid Company Silver Spring Networks' NASDAQ IPO Raises $81 Million - Shares Surge 29% on First Day of Trading

Smart Grid Company Silver Spring Networks raises $81 million in long awaited IPO, with shares surging 29% on the first day of trading.  This IPO puts the company's valuation at approximately $750 million, and gives the company access to capital markets, an important source of capital to fund the company's operations going forward.  There are a few points to raise regarding this offering:

1. The company sold 4.75 million shares, up from the 3.75 million shares it had expected to sell as of last week;
2. None of the existing investors sold their shares in the IPO, preferring to hold onto their investments;
3. The company has raised approximately $303 million in debt and equity since 2004;
4. 2012 revenues of $197 million are 17% lower than 2011 revenues of $237;
5. Silver Spring Networks lost close to $90 million in 2012, a number that has to get smaller very fast, or the company runs the risk of approaching subsequent capital raises just to fund negative margin operations; 
6. The majority of the company's revenues come from 7 major United States utility customers; and
7. The boom in smart meter deployments in the United States has subsided.

The basis for the company's valuation and future growth prospects is premised on the following:

1. Leverage the Installed Base - Silver Spring Networks' deployed smart grid communications networks are platforms for deploying additional products and services up and down the energy value chain, from DSCADA to improve utility grid performance and operation, to leveraging the customer interface for utilities, and into the customer's premise, providing energy management control and data acquisition for customers.  Demand response, for example, represented a very small proportion of hte company's revenues;
2. Expand Internationally - The opportunity for smart grid deployments and AMI continues to expand internationally, recognizing that Silver Spring Networks already has customer relationships in Australia, Brazil, the UK and Singapore.  International only accounted for an estimated 8% of revenues in 2012. 
3. Deploy Additional Equipment and Services - Much like Itron, Silver Spring Networks has the opportunity to leverage its stock to acquire additional equipment and software companies to layer additional revenue generating services on top of their smart grid platform.
4. Expand Into Additional Markets - Silver Spring Networks also has the opportunity to deploy their communications networks and solutions in gas and water industries, as well as selectively targeting other network and industrial businesses that can use their wide area energy management capabilities, perhaps including trains and natural gas pipelines.

At the end of the day, for this IPO to be successful, the Silver Spring Networks has to have a brilliant execution strategy over the next 12 months in order to demonstrate that they can meet the expectations embodied in this first day of trading.  Critical will be (1) turning around the decline in revenues; (2) reducing losses on a quarterly basis to demonstrate being on a pathway to a sustainable cash flow; (3) demonstrating success in expanding into new international markets; and (4) demonstrating their ability to expand products and services to leverage their core network platform.