Stimulus funds helped some stocks soar

— -- As Congress and the White House launch investigations into renewable-energy loan guarantees made to companies such as Solyndra under the 2009 stimulus bill and related legislation, a USA TODAY analysis shows that a series of public companies that got help have soundly beaten the stock market and most venture-capital funds raised in 2008.

With debate raging in Washington about whether government can effectively pick winners and losers in a fast-changing economy, the data shed light on how well the Obama administration did the two major jobs that venture capital performs in a high-tech economy — helping investors make money and bringing new technology to market. Skeptics have pointed to former Obama economics adviser Lawrence Summers' comment in a 2009 e-mail that "government is a crappy VC" to argue that the $787 billion stimulus measure was packed with waste.

About $100 billion of stimulus funding was earmarked for technology spending, according to tech consulting firm International Data Corp. Two-thirds was for energy technology, and most of the rest will subsidize doctors' adoption of electronic medical-records (EMR) software. At USA TODAY's request, IDC identified major beneficiaries of that spending to examine whether the money helped companies grow and bring technologies to market.

The analysis covered more than 45 companies that are public or have registered for initial public offerings, including most leading makers of electronic medical-records software and electric cars, and a small selection of the 5,000-plus companies and local government agencies that got clean-energy stimulus grants. Separately, USA TODAY looked at the recipients of all 38 completed or pending loan guarantees under the Energy Department's three major financing programs, including well-known public companies such as Ford, Southern Cos. and NRG, not on IDC's list. In all, the included companies, or their customers, are to receive more than two-thirds of the technology funding.

So far, the legislation has sparked adoption of electronic medical-records software and nurtured an electric-car industry that will sell at least 20,000 cars this year. At least 19 companies have gone public or filed for IPOs after getting stimulus money, from Solazyme's $21.8 million grant to build a pilot biofuels refinery to a $1.6 billion loan guarantee letting BrightSource Energy build the world's biggest solar-generation plant of its kind, according to securities-disclosure filings.

The stimulus has helped spark an 82% gain in the stocks of 11 health care technology companies since President Obama took office and a 263% gain in the three public companies that took $7.8 billion of federal financing to build next-generation vehicle factories. It contributed to a 79% jump in stocks of the four leading energy-efficiency companies identified by IDC, including diversified companies such as Johnson Controls and Honeywell. Companies involved in developing smart electric grids, nine big tech firms that are also in many other businesses, have risen 54%.

All these match or exceed the 51% gain in the Standard & Poor's 500-stock index, and beat the 4.9% average annual gain in venture funds raised in 2008, according to Cambridge Associates. The big exception is that the five solar-power companies and advanced-battery manufacturers on IDC's list have fallen 70%. Similarly, among the loan-guarantee recipients examined by USA TODAY, solar-power related companies such as Solyndra and energy-storage companies such as Beacon Power, which filed for bankruptcy reorganization Oct. 31, have fared the worst.

The impact is filtering into the real economy, too.

Solazyme's algae-based jet fuel powered its first United Airlines flight on Nov. 7. More than 40% of doctors now use electronic medical records, up from 29% two years ago, including 75% of those working in groups of more than 25 physicians, according to research firm SK&A. More electric cars are hitting the road, with Fisker Automotive's $95,900 luxury sedan reaching U.S. stores this month, as Tesla Motors gears up to supply batteries for Toyota's electric RAV4 SUVs, in addition to launching its Model S sedan next year.

Even a venture capitalist who cautioned the White House about its public support for Solyndra says the stimulus overall was still a good idea.

"The government has been a better VC than a certain number of people on the Street," said Steve Westly, a former California state controller and Obama fundraiser whose venture firm backed Tesla and biochemicals company Amyris, which each got aid. Westly sent a well-publicized e-mail to Obama aide Valerie Jarrett, trying to persuade the White House not to have the president visit Solyndra.

Getting some flak

The stimulus' technology-boosting plan sparked a firestorm when Solyndra defaulted on its federal loan in August. The Republican National Committee on Nov. 9 lumped the programs with the collapse of investment bank MF Global amid Europe's debt crisis as evidence of the administration's financial mismanagement. "This is a classic case of waste, fraud and abuse," House Energy and Commerce Committee Chairman Fred Upton, R-Mich., said in August. Department of Energy spokesman Damien LaVera declined to make senior officials available for comment.

The success or failure of the stimulus is about more than stock prices. The number of permanent jobs created or saved in the government's loan guarantee programs is about 40,000, plus several thousand more construction jobs. More than three-fourths of the permanent jobs are at Ford. The government owns stock in few of the companies it backs, meaning others reap the gains. In most others, Washington's skin in the game is only the company's ability to repay loans that the government makes or guarantees.

Furthermore, stimulus funding isn't the only reason many companies that received it have prospered. General Electric's $210 million of stimulus revenue is less than one-tenth of 1% of sales, spokesman Andrew Williams said. Likewise, Dell and IBM have cashed in on smart-grid development or health records upgrades and been boosted much more by the broader recovery. Even at a smaller company such as Solazyme, stimulus aid was far less than the $280 million it raised in venture capital and IPO funding.

Still, government bridged a bond-market gap that has lingered since the 2008 financial panic, said Scott Sandell, a partner at New Enterprise Associates (NEA), the nation's largest venture firm.

"Across all the clean-tech sectors we invest in, there has been a tremendous paucity of capital at any stage of a company's development where there's any risk," said Sandell, whose firm backs Fisker, which got a $529 million loan guarantee to retrofit an ex-General Motors plant in Delaware. "Trust me, it's been a barren landscape."

A leading IPO analyst concurred, saying the stimulus built market confidence in companies such as Tesla, helping them attract IPO investors and corporate partners.

"The government money was a platform, and a few of them like Tesla used that and flew off on their own," said Francis Gaskins, editor of IPO Desktop. "Many of them looked at the government money as a way to do things they might have done anyway."

Healthy gains

The clearest connection between the stimulus and the economy might be in health care software, in which the boost in companies' value far exceeds the amount spent so far in a five-year program costing up to $30 billion. Together, the gain in value of companies such as McKesson, Cerner and Athenahealth since the stimulus bill was proposed is at least $20 billion.

The stimulus has paid about $100 million so far to clients of Cerner, the largest maker of electronic medical-records(EMRs) software, said Piper Jaffray analyst Sean Wieland. Given Cerner's 20% market share, that translates into $500 million in extra annual sales for the industry, which may double as lower Medicare reimbursements, also part of the stimulus law, kick in for doctors who don't use EMRs by 2015, he said.

"This really did accelerate adoption," said Jeff Townsend, chief of staff at Kansas City, Mo.-based Cerner, whose stock-price value is up 194% or $6.5 billion, since January 2009. Cerner's new-software sales rose 26% in the first nine months of 2011 vs. 2010's pace of 16%. He said extra spending will add to growth, as doctors upgrade their systems and connect them to each other.

That spending has lifted nearly all health information technology stocks. Allscripts Healthcare Solutions, an EMR company whose CEO Glen Tullman raised money for Obama in 2008, has seen shares rise 134%. Rival Athenahealth, which supplies Internet-based medical-billing and EMR services as a cheaper alternative to software, has doubled since mid-2010.

The question is whether the spending was efficient, says Athenahealth CEO Jonathan Bush, who has donated to Mitt Romney's presidential campaigns and is former president George W. Bush's cousin. He says Washington could have spurred adoption of cheaper, more flexible technology such as his through regulatory changes without subsidizing software.

"We're a beneficiary of stimulus spending, but we'd be doing even better without it," said Bush, whose company benefitted from the administration's decision to have Medicare reimburse doctors for regularly using EMRs, favoring pay-as-you-go Internet business models such as Athena's, rather than paying for software purchases up front. "What you really needed was hundreds of cloud-based companies innovating."

By government standards, the health care stimulus was fairly disciplined, Townsend contends. Doctors aren't reimbursed for software until they show they're routinely using it for work such as prescribing medications, he said. While knitting together networks owned by different doctors and hospitals will take time, data-sharing is essential to contain overall health care spending, he said.

Getting it out there

The energy stimulus is more controversial. More than 5,000 grants totaling $34.6 billion and 38 loans and loan guarantees totaling an additional $35.9 billion have been approved. But $11.3 billion of loan deals haven't closed and just $19.2 billion of the grant money has been spent, according to Energy Department data.

Energy stimulus produced the best-known stimulus failure, Solyndra. A congressional panel is investigating whether politics tainted Solyndra's loan review, and plans to probe other guarantees.

Also struggling is A123 Systems, which won a $249.1 million grant to build a Michigan factory for electric-car batteries. Its stock has fallen 83% since its 2009 IPO. A123, which lost $172.8 million for the first nine months of 2011, said it will break even by 2013, excluding taxes, interest and non-cash accounting charges.

Another loan-guarantee recipient, Beacon Power, filed for bankruptcy protection Oct. 30.

Not all the money is for high-risk deals. More than $10 billion in loans are scheduled for two nuclear plants, both backed by utilities with investment-grade credit. Another $8.3 billion has been loaned to Ford, Nissan, Tesla and Fisker to develop fuel-effective vehicles. Almost $6 billion went to Ford to develop new versions of models that sell 2 million units annually.

In each guarantee, the government will only lose money if the borrower defaults.

The $13 billion-plus for solar loans is divided between $1.82 billion for plants to manufacture equipment for newer technologies, including Solyndra; and more than $11 billion to build solar-power generation plants, mostly using existing methods. Loans to solar farms are safer, as those deals include long-term contracts for utilities to buy electricity produced at projects such as BrightSource's $1.6 billion Ivanpah, Calif., facility, said Lux Research analyst Andrew Soare.

Investors have already made big returns on companies in several DOE projects. Tesla raised venture capital at $7.53 a share in May 2009, got its loan guarantee that June, went public at $17 last year and now is worth $32.60 a share, or $3.4 billion. Ford is up fivefold, driven by a global auto recovery.

The loan "lets us get to where we can make mass-market electric vehicles," said Diarmuid O'Connell, Tesla's vice president of business development. He said taxpayers also win if electric cars trim U.S. oil imports. "For either economic or policy reasons, you have to do what's next," he said.

If anything, the industry has been held back recently because U.S. loan guarantees are hard to get or come with red tape, Sandell said. A better offer from China's government helped persuade NEA-backed solar-cell maker Suniva to build a factory in Asia rather than Michigan, he said. KiOR, which is developing wood-based ethanol substitutes, deferred its application for a $1.1 billion guarantee to finance refineries in Mississippi until 2012, although the program's funding is in limbo.

"It may never close," Vinod Khosla, a VC who controls a 72% voting stake in KiOR , said in a September interview with The Daily,Rupert Murdoch's iPad newspaper. KiOR went public in June, after winning a tentative loan-guarantee commitment, making an 11-fold gain on pre-IPO shares. "If you can get an (ExxonMobil) or a Chevron to work with you, why go through the federal government?"

The volatile stock market will help determine the success or failure of the stimulus, whether measured by gains in market value or jobs created, said NEA's Sandell, a frequent donor to Democratic politicians.

Start-ups that go public create 90% of their jobs post-IPO, he said, citing a study commissioned by the National Venture Capital Association. It will take years before the full impact of stimulus-funded companies is apparent, while Solyndra-like mistakes typically reveal themselves quickly, he said.

"If it succeeds, it will succeed because a handful of companies produced extraordinary results," said Sandell. "The lemons always show up first. That's the story of the venture capital business."