A couple of days ago I was informed of a company which was developing a marvelous new battery.
The company’s website had an awesome video, with graphics that showed its benefits and how it worked (well, it looked impressive, but I didn’t really understand how it worked). Numbers were presented which claimed that its performance was nearly 100 times better than Lithium ion technology – the best technology now in widespread commercial use.
And there was a link to the company prospectus, offering a limited number of shares, and talk then of an IPO in a couple of years, and how there had been “discussions” with possible name-brand customers who had expressed “interest”.
The prospectus was issued to raise money in order to develop a prototype.
Now you are probably like me, wondering how can they be promising performance nearly 100 times better than the existing technology? In this case the claim was that an electric vehicle could have a battery that weighed nearly 100 times less.
And yes, you are right, it isn’t that hard to figure out that something doesn’t look quite right. Turned out that looking in detail in the prospectus there was a graph that indicated that in fact the new battery in fact stored only something like 40% more energy per kilogram than lithium ion. So how could it then weigh nearly 100 times less? Then there was a press release included in the annexe of the prospectus claiming that you would never need to charge your electric vehicle, as it would capture energy from braking! Or in other words that somehow this battery would convert an electric car into a perpetual motion machine.
But that’s not what I want to talk about. Specifically I want to talk about the practice of attaching distinguished names to green investment offers such as these, combined with great presentation, which give such a veneer of respectability that people willingly pull out their wallets – and how often the con isn’t as obvious as this one was.
Because this unscrupulous, unethical, dishonest practice really makes me mad, as I would like to believe that there is an element of ethics associated with sustainability, that somehow ethical behaviour and sustainable behaviour are related. I feel as though the honour involved in pursuing genuinely sustainable solutions is stained and tainted by this behaviour.
So as an investor what should you watch out for? In no particular order:
- Technology you don’t really understand. Yes it will sound plausible, and there may the names of some respectable institutions or names associated with it. But if you don’t understand it, and you can’t find anyone who understands it, be careful! Don’t be afraid to seek technical advice, even if you are an engineer or scientist yourself, but the technology is not in your direct area of expertise or beyond your expertise.
- An address from a wealthy suburb coupled with one or two of the items mentioned below. Now if you have a great address you may consider that a bit harsh. And I haven’t done a regression analysis on postcode vs con. I’ll admit I’m a bit emotional about this as this sort of fancy address has appeared on a couple of green businesses prospectuses that have really made my blood boil.
- Look for a line item called “consultancy fees” in the prospectus. If it is a relatively high number… well a lot of that money may end up at that fancy address, rather than into actually developing the prototype.
- Look for gross over-valuation of the founders’ shares. They may be valued in the 9 digit mark or higher! And the prototype hasn’t even been built yet…
- Look for high salaries for the founders (and yes, they may even be double dipping, with high director’s fees on top of their inflated consultancy fees). The salaries may not be high in the context of a company already listed and operation on the stock exchange. But way above the salary you would expect from a genuine and passionate inventor doing the hard yards in a lab or workshop.
I have nothing against out of people doing well by providing green solutions. But first the solution should work, be proven, the results must be real. Make sure this is the case, not a green investment con wrapped up in emotionally attractive sustainable packaging.