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What's up with WATT, Pt I (or "What's Wrong with Tech Journalism?")

It's been a while since I covered Energous (whose ticker symbol is WATT . Other posts are here , here , here , here , here , here , and...

Sunday, April 24, 2016

Those Other Guys, Pt II


So back to Energous. Where we left them was that we had, through the use of physics, mathematics, and reasoning, completely demolished their claims and proven that what they are saying is unachievable - that is they are either idiots, or liars (or maybe I'm the idiot!). That's where we'd be in a sane world, but it got complicated and so you just switched off, maybe you heard 'blah blah' or sounds like the Peanuts' teacher, but overall you just didn't care. 

So let's take a look at the business side of Energous instead. You can find lots of information out by looking at their S-1 or their 10-K/Q, because they're now a public company - more on that later.

Energous was formed in late 2012 by an MIT graduate with lots of experience in wireless communications. His parents even invested $10,000 to get him started. Normal startup so far, but then it gets weird. Just three months later, an investment bank, MDB Holdings, come in and start advising and investing. Barely a year after that, they then file for an IPO - that is, selling shares to the public. A company with no product, no revenue, nothing at all, is filing for an IPO. They do have great publicity and a great story, however, and are talking about world changing products coming later that year. Who wouldn't want to get in?!

In March 2014, 18 months after forming, it sells $24 million of shares. That $10,000 his parents put in is now worth $26 million. Nice return. The company is worth well over $100,000,000 - remember, no product, no revenue. But you know someone's making money in all these transactions.

And now the SEC is involved - there are major penalties for lying in any statements from a public company, so they must be being honest, right?

Since then, two years on, and there's still no product, in fact they are backtracking and pushing dates further out, and drastically cutting performance specs on their product. But they've added lots of big names as boardmembers and advisors! These smart advisors and big name board members wouldn't join unless there's something there!

And recently, they admit that they still haven't demonstrated a commercial level product, even in their lab. Uh-oh, they must be collapsing and in terrible trouble.

Well, no. The CEO now makes $2 million per year - for a company under 4 years old, with no product, and no sales. The VP Engineering and VP Sales/Marketing each make $1.5 million.

That's $5 million per year in salary for three people, once again for a company with no product and no revenue. So let me summarise:

  • Come up with a really good story for a product people just have to have
  • Just make it believable enough, and for people to want to believe, for the skeptics to be ignored
  • Create massive hype in the media to boost interest
  • Announce fantastic products somewhere out in the future
  • Never quite directly answer the critic's questions over the practicality, always dodge and claim 'proprietary'
  • When eventually it gets to that time you need to show product or demos, get in some 'big names' instead and make them public to make outsiders think it's all still great
  • Keep it going long enough someone eventually buys you and cash out

Remember I said earlier that in my opinion those behind the company are idiots or liars? Well, they made $5 million in one year from it. Which do you think they are?

Here's the genius of Energous. Normally a startup cycle works with the early investors trying to get it to the point where there is a product revenue, or more likely a buyout where they cash in. It usually takes several rounds of financing, with lots of dilution along the way, along with a big chance of failure. Energous bypassed that and went straight to IPO, and got their money out at the beginning. No risky and long slog to return - just jump straight there. It looks to me like they gamed the system, and did so brilliantly.

Now they had better hope they didn't lie in anything the SEC related, but otherwise, they're laughing. They don't even need to make a product to earn more money from this, each, than most people earn in a lifetime of 9 to 5.

But, hey, there has to be something there. People wouldn't just make stuff up to make money, that never happens. And if they did, it would be a one-off, an aberration. There couldn't possibly be other hyped technology companies following that bullet point list from above, could there?

9 comments:

  1. You guys are all the same, baseless accusations.

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    1. The 'accusations' are statements of fact. Please point out which statements are incorrect, or where my analysis is incorrect. Otherwise, it's your statement that is baseless, by definition.

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  2. Or, more succintly:

    1) start up
    2) cash in
    3) sell out
    4) bro down

    http://www.businessinsider.com/a-4-step-startup-plan-from-south-parks-eric-cartman-2014-11

    Thanks for sharing Paul.

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  3. Wow...what a deviously brilliant scam. :(

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  6. 2 questions, wouldn't it be fraudulent if they knowingly don't have a viable product but keep saying they do? And let's say they are playing the buyout game, don't investors still win in that scenario?

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    2. It all depends how they say it. "We have a device that transfers power wirelessly through the air" is a true statement, whether it's 10 Watts over 10 meters or 1 microwatt over a centimeter. Without numbers it's impossible to judge if it's useful and that's the main thing with "power companies", most people just don't have the technical knowledge to understand the difference between theory, possible, and practical. A company could even say they've charged a phone at 5 Watts, but not include efficiency, safety, or the fact that a regulatory agency won't allow them under current regs to do so because they are broadcasting power orders of magnitude more than what is safe, for example, and still not be lying.

      And yes, if they sell the early investors do gain out of that, however the investors in the final company that buys do not. Are the final buyers paying for the company based on good information and eyes wide open, or are they being tricked and defrauded? If they have knowledge but are stupid and overpay, that's just business. If they are deceived and overpay, then that's fraud, even if early investors get out richer.

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