- Great technology. Horrible investment.
- This company could give Tesla a run for their money
- China’s “bargaining chip”
Dear Reader,
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
When great technology is a bad investment…
Hello Mr. Brown.
I just watched an ad for investing in Miso Robotics. How would one evaluate them? What do you think about them? It seems like a great idea to me!
Much appreciated.
– Alison T.
Hi, Alison. I’d be happy to share my thoughts on Miso Robotics and their recent crowdfunding raise.
Longtime readers might recognize the company name. We’ve been covering Miso Robotics for the past several years. The company is known for its autonomous technology applied to the restaurant industry. Specifically, Miso has developed a “burger flipping robot” called Flippy. Here’s Flippy in action.
Flippy, the Kitchen Robot
Source: Robotics and Automation News
I really like this technology. And it makes perfect sense to apply robotics to the restaurant industry. This industry has been struggling with a massive labor shortage in recent years.
Last year, 78% of owners of fast casual restaurants said they didn’t have enough labor to maintain regular operations. This was the “Great Resignation” in action. So, it made sense when Miso Robotics signed a deal with White Castle in October last year to install the technology in 42 locations.
I like what Miso Robotics is doing. And as a technologist, this is a good application of the technology. But that doesn’t mean that it’s a good investment. When it comes to investing in Miso’s crowdfunding raise, I couldn’t recommend it to subscribers.
I reviewed Miso’s offering when it first launched. And I concluded that the valuation was extremely rich. Miso just completed its raise at a valuation of $519 million. That doesn’t necessarily mean the company is worth that much. That’s the valuation the company is asking investors to buy in at.
And if we read the offering circular, we’ll see that the company generated only $82,600 in revenue from January to the end of June of this year. That’s not necessarily anything to be ashamed of. Miso Robotics is a young company. But it doesn’t come close to justifying a valuation above $500 million.
As an exercise, let’s figure out what the valuation multiple is for Miso at the current crowdfunding raise. Let’s be really generous and make an assumption that Miso Robotics will generate $500,000 for the full year. Probably will be less than half that, but let’s just assume sales really take off.
That would result in an enterprise value to sales multiple of more than 1,000. If Miso does $250,000 this year, the EV/Sales will be more than 2,000.
For comparison, one of the most successful robotics companies in the world, Fanuc, trades at an EV/Sales of 4.8.
I’d like to be very clear about this. For a company that is generating revenues and selling products, investing at the kind of multiples that Miso is “selling” its shares at is a recipe for disaster. Any investor that does that is setting themselves back years before they ever have a chance to even breakeven, let alone make a profit.
For comparison, almost all the companies profiled in Day One Investor—my research publication for private investments—gave investors access at a valuation below $50 million. Some were below the $15 million valuation level.
The key point is that the valuation is critical to understand when investing in private companies. The valuation has to be appropriate and attractive for each company given a wide range of factors that go into determining a valuation. And valuation methodology is different for pre-product revenue companies, as opposed to a company like Miso which is selling its products.
I really don’t like it when companies like Miso launch crowdfunding deals at grossly inflated valuations. They assume they can raise capital while giving up less of their company. And they assume retail investors won’t have the sophistication to understand that they are grossly overpaying for equity.
And it was a bit of a red flag that the website for the crowdfunding raise made zero reference to the valuation. It wasn’t in the summary. It wasn’t in the “frequently asked questions.” My team and I had to do some digging to get to the bottom of it.
So, to conclude on Miso Robotics: Great technology. Bad investment. I would never consider investing my own money at those valuations, which also means that I would never recommend an investment like that to my subscribers.
I hope that answers your question, Alison
The next Tesla?
My Tesla Model S will go 400 miles, which is 50 miles better than Fisker. I wish the company good luck. We need better EVs than some of the VWs.
– D.R.
Thanks for writing in. It’s a fair observation. But I don’t think this would be an impediment to Fisker’s success.
To catch readers up, Fisker is a newer entrant into the electric vehicle space. We’ve been covering its progress in the pages of The Bleeding Edge. And what I love about the company is that it’s taking a page out of Tesla’s book for its new SUV, the Fisker Ocean.
Prior to Tesla, electric vehicles—the few that existed anyway—had been unappealing to say the least. I remember the General Motors EV1, produced from 1996 to 1999.
General Motors EV1
Source: Wikimedia Commons
It’s functional. But it’s not the sort of thing we’d like to see in our driveway. And with only two seats and a range of just 100 miles, the EV1 never took off.
Tesla’s first car, the Roadster, promised to be different. Musk promised to make an EV that was stylish, high-performance, and cost-competitive with other sports cars. And that’s exactly what he did. Here’s a look at Tesla’s next generation Roadster, due out next year. Stunning!
Tesla 2023 Roadster
Source: Tesla
That is a stylish car. It can go from 0 to 60 mph in less than two seconds, has a top speed of 250 mph and a 620-mile range. It will set a car buyer back close to $200,000. That might seem like a lot, but we should compare it to some of the cars put out by Lamborghini and Ferrari. The 2022 Ferrari 296GTB costs more than $322,000.
And it’s not just high-performance cars. The Tesla Model 3 is a modern sedan that starts at just $40,000. That’s about what we’d expect to pay for a traditional sedan.
The real brilliance of Tesla’s products—its technology is brilliant in its own right—is that the cars are stylish and cost-competitive to their internal combustion engine counterparts.
In other words, consumers could have an EV without all the tradeoffs (unattractive design, higher price) that was common in the industry before Tesla. And what I like is that Fisker is doing the exact same thing.
The Fisker Ocean
Source: Fisker
The Ocean has a sleek, modern design. And just like Tesla, the Ocean is priced competitively. It starts at just $37,499 for those that were able to make a reservation. Again, that’s about what we’d expect for most compact SUVs.
It’s true that the Ocean does not have the range of a Model S. But the Model S is a sports car, starting at $96,590. A fairer comparison would be to look at Tesla’s own compact SUV, the Model Y.
Tesla lists the Model Y with a range of 330 miles and a starting price of $58,190. And by this comparison, the Ocean wins out.
Of course, Fisker doesn’t have Tesla’s incredible self-driving technology. But for consumers looking for an “everyman EV,” this is a great option.
And the reality is, for most drivers, the small difference in range isn’t a big deal. It doesn’t impact daily use back and forth to work, getting the kids around, or hopping around town.
And I would point out that this isn’t an “either/or” situation. There is plenty of room for both Tesla and Fisker to thrive in the electric vehicle market.
We’re in the very early stages of a multi-decade adoption cycle for EVs. And it will be exciting to watch both companies succeed in the years ahead.
A naval blockade?
Several comments about Taiwan:
The situation here is very different from the one in Hong Kong in 1997. There was a handover from the British people to China at a very specific date. Here there is no handover and no specific date
In my opinion, the most likely scenario would be for China to make a maritime blockade around Taiwan and wait for the Taiwanese government to capitulate. It can be done without loss of lives.
China may forbid TSMC to sell chips to specific US companies like NVIDIA, the same way the US government does not allow NVIDIA to sell its chips to China…
What do you think?
– Paul B.
Hi, Paul. Thanks for reading and writing in with your thoughts.
The topic of Taiwan and China has been an ongoing discussion in the pages of our mailbag. Recently, I shared my thoughts on what a “soft invasion” of Taiwan might look like. And I’ll share my thoughts on some of your comments.
First, it’s true that the handover of Hong Kong to China was predetermined. But that wasn’t the point I was making. After the official handover from Great Britain to China, we had the “one country, two systems” principle. In other words, Hong Kong would still operate as a semi-autonomous “province”. And for the West, the Chinese government appeared to be abiding by this.
But very slowly, China began placing “their people” in positions of influence and power. It came to a head in 2019 and 2020. Today, Hong Kong is almost entirely under Beijing’s control. What I’m saying is that the same thing will play out in Taiwan. In fact, it already is.
Just like the U.S., Taiwan recently had elections. The DPP, which is the pro-independence party, suffered its worse elections in 36 years to the KMT, which is the pro-unification party in Taiwan.
It is well known that China has interfered in U.S. elections in the past, it’s not a leap to believe that China has done the same in Taiwan. Slowly but surely, the Chinese government is establishing administrative control over the island.
Second, a naval blockade is possible, but I view it as unlikely. It would be so provocative as to almost require some form of military response from the West.
And as I shared the other week, an all-out war is the last thing China—or the world, for that matter—needs right now. Xi Jinping understands this. So, I believe he will go with the more subtle, “soft invasion” that I outlined above.
As for your third point. Again, it’s possible, but I don’t think it’s as likely. Effectively “controlling” Taiwan would be an amazing bargaining chip for the Chinese government on the global stage.
If China is in control of Taiwan’s economic resources, it literally means that it has the power to hold the global economy hostage. Taiwan is that strategically important to the world. It’s pretty safe to say that just about anything that has electronics in it has ties back to Taiwan.
This would put China in an unbelievable negotiating position on the world stage. And I suspect they would use that leverage to force the U.S. to lift some of its sanctions on technology importation.
And one final point on the timing. While you’re correct that there is not a predetermined date as there was with the handover of Hong Kong, there is a predetermined window within which this needs to happen.
There were many in the Chinese Communist Party who were opposed to allowing Xi to preside over a third term. Just like the U.S., there was a two-term limit in China. Xi was able to have the rules changed and get elected for a third five-year term primarily by committing to reunifying Taiwan.
I am certain he won’t lose face. He will get it done.
And with a weak U.S. administration, his optimum window is within the next 24 months. I actually think it will happen in the next 12. I doubt he’ll ever have a better window to get the job done.
That’s my analysis on the most likely outcome. But again, this will be a story that develops in the months ahead. And I’ll be sure to keep readers updated as things progress.
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a good weekend.
Regards,
Jeff Brown
Editor, The Bleeding Edge