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Selling A123 before the fall

October 17, 2012: 2:06 PM ET

Longtime VC investor bails just one month before battery maker's  bankruptcy filing.

FORTUNE -- As battery-maker A123 Systems (AONE) was hurtling toward bankruptcy, one of its longtime investors was furiously dumping shares. Or, more specifically, a longtime investor with a representative on the A123 board of directors.

North Bridge Venture Partners first backed A123 in either late 2001 or early 2002, with partner Jeff McCarthy joining the company's board of directors. It would continue to support the company, ultimately investing more than $40 million alongside financial and strategic investors like Sequoia Capital, Alliance Bernstein, General Electric (GE), Qualcomm (QCOM) and Motorola (MSI).

By the time A123 went public in September 2009, it had raised a total of around $240 million. None of its private investors sold shares in the IPO, following which North Bridge held a 9% equity position (8.86 million shares). The North Bridge stake was valued at nearly $120 million at the time of IPO, and $228 million just a few days later.

Over the intervening three years, North Bridge didn't sell a single share. Not when lockups originally expired. Not when the stock price steadily declined. Not when it was forced to recall defective electric car batteries last December. Not when the company signed a $465 million bail-out of sorts in early August with Chinese auto parts maker Wanxiang Group. Not a few days later when U.S. Congressmen began objecting to the deal, or when NASDAQ issues a delisting notice on August 22 (because the company's shares had been trading below $1 for more than 30 days).

No, North Bridge didn't unload its first share until August 28, when it sold 732,989 shares at $0.28 per share. And then it sold the rest of them. Between August 28 and Sept. 9, North Bridge managed to unload all 8.6 million of its shares for around $2.02 million.

Obviously a huge loss compared to both its cost basis and its paper value back in 2009, but still some savings from what North Bridge might have received in a bankruptcy.

McCarthy remained on the A123 board during this period, not formally resigning until last Saturday (according to an 8K filed earlier today).

It is entirely possible that the share sale decision was divorced from the looming bankruptcy, perhaps prompted by the delisting notice or some other internal North Bridge trigger. It also is possible that there was a firewall between McCarthy and North Bridge trading decisions on A123, as some larger private equity firms have in place, although it seems unlikely.

But it is, at the very least, a curious development. North Bridge held onto its A123 investment for more than a decade, in both good times and bad -- always believing, it seemed, that even better times were ahead. So why did it choose to sell out just a month before the company filed for Chapter 11? And should its own investors be pleased that the firm at least got pennies on the dollar, or livid that it didn't sell at a profit when it had the chance (as, for example, Sequoia Capital did).

I've put the questions to McCarthy, North Bridge and A123, but have not yet heard back.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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