Enrico’s avocation is scribbling and punditry, but, as with prostitution, the ability to derive income from my avocation is greatly hampered by all the amateurs giving it away for free. So, my vocation is the pursuit of filthy lucre, the efficient use of capital to extract highly excessive profits by buying future cash flows at very very low prices. I once knew a guy named Jeff Luker, no kidding! We referred to him as Jeff “Filthy” Luker.
My incessant hand-wringing over the more banal financial instruments has probably been the source of some annoyance and impatience for all my readers, and everyone will probably know by now that I have been looking increasingly far afield for some path to at least mitigate the total ruination of my vexatiously won meager hoard of capital. Thus, I often these days find myself listening to entrepreneurs, pitch men, brokers, bankers and other would-be stewards of capital describe how wonderful life will be if I entrust them with the mission of delivering those ever elusive future cash flows.I attended recently an event regarding a late stage enterprise. Let’s just say that the enterprise is involved in the biofuels industry. The premoney valuation of this company was at least double the maximum I would normally even consider as a private equity investment, but I was swayed to listen by the shocking, stunning allegations about the potential size of the future cash flows.
This deal looked quite odd from the very beginning. The company had already consumed vast tracts of capital which had been ponied up by the usual suspects in silicon valley.Amongst these usual suspects is a gentleman whose name I will not mention in order to spare him embarrassment, but he made his fortune with companies involved with the applications of silicon chips, and he has now become quite passionately involved with clean tech, like so many of his SV brethren. You can watch a video tape of this gentleman declaring from the podium of an exclusive conference that the production and consumption of petroleum products is a net energy loser, that more energy is consumed in the drilling, transportation, refining and eventual burning of a barrel of oil than the energy that is produced by the eventual burning of the barrel of oil. Of course, this is complete nonsense. The average energy balance for a barrel of oil, well to burner, is about 10 to 1. Yet, in this video tape, people in the audience nod wisely when he makes this outrageous assertion, and no one bursts out laughing, and no one leaps up or even clears his throat.
I personally witnessed ANOTHER distinguished gentleman make this very same ridiculous claim from the podium of ANOTHER distinguished conference. I did burst out laughing, and I raised my hand and waved it frantically, trying to get Martin’s attention, but he ignored me. I later emailed him to tell him how totally full of crap he was, but oddly, I never received a reply.
At any rate, back to this company, which I will call BugFuel (which is NOT its real name, but would be an excellent name for this kind of company), this company, after consuming these huge swatches of capital, was now going around with a sort of would-be investment bank, looking to raise money from the likes of Enrico.
Now, I don’t mean to offend anyone, and I have a healthy self image, but the industry short hand for this sequence of capital raising would be something along the lines of “Let’s hit the dumb money.” It is so odd, so unusual, to do things in this way that there is almost always a very interesting story lurking in the background.
I looked into BugFuel’s claims in some detail. I looked into other companies working in this area. I did all the usual things I do, based on my experience that the correct assumption, when looking at a new company run by people one does not know, is that the principals are all thieves and conmen, unless one can definitively prove otherwise.
I finally concluded that the company had excellent science, very good executive leadership, and a somewhat novel business model that had the potential to mitigate the gigantic, almost insurmountable barrier to biofuel companies which arises from the mind-boggling scale of the energy industry and the concomitant mind-boggling capital demands.
However, the valuation proposed by the company and by the wannabe investment banker just made me laugh. It really made me giggle. It bore absolutely no relation to any conceivable reality. It was truly the greater fool theory made flesh. It was so much so the greater fool theory that the wannabe IB dude kept babbling about Google in his pitch. I finally asked this dude, whom I will call Glengarry Glen Blake, what on earth Google had to do with BugFuel. He stammered and stuttered around for a minute, after I finally made him realize that he would have to stop talking in order to hear what I was saying, and explained, in his own quaint argot, that he was making an analogy between the potential “addressable space” of Google and BugFuel. He meant, simply, to assert that BugFuel would be able to sell to a very large market, and that, upon a float, BugFuel would rocket up insanely in a googlish manner.
So, I decided that I would not get involved with this “opportunity.” I phoned Glengarry Glen Blake to tell him thanks, but no thanks. He answered the phone, put me on speaker, and I told him I was going to pass. He then said something like “Who is this? What happened to Enrico Hale? Can I please talk to Enrico??” I laughed, who wouldn’t, but then, and I swear to god I am not making this up, he began SCREAMING at me. He kind of calmed down enough to ask me why I didn’t want to play, and I told him the valuation was insane. That really set him off. He said, are you scared? Are you afraid? He said, you pretended you were interested. He said, you’re lying, that’s not the reason. Tell me the reason!
I don’t like being called a liar. I don’t tolerate it. I said “Fuck you.” He said “What did you say?” I said, much louder this time, “FUCK YOU.” Some other dude who was in the room with Glengarry Glen Blake tried to interject something about the “addressable space.” I said “Fuck both of you, and don’t ever, ever call me again.” I hung up.
So, that was pretty mind boggling. Glengarry Glen Blake sent me an abusive email a few minutes later.
I have to conclude that Glengarry Glen Blake’s former occupation was timeshare condo salesman. The guy went all boiler room on my ass.
I wrote to BugFuel, telling them what had transpired with Glengarry Glen Blake. BugFuel’s execs are responsible guys with great resumes. If I were them, I would be absolutely mortified by the way Glengarry Glen Blake carried on.
Bear in mind, too, that little Enrico was absolutely going to invest no more than the bare minimum of the deal, if he invested at all. He is a tiny little guppy in the context of this deal. Enrico would like to know what on earth is going on that Glengarry Glen Blake could even get motivated to behave in this manner in this situation with little Enrico. It is a useful skill in the worlds of high and low finance to be able to blow one’s top on cue, just as an actress must be able to weep copiously and credibly on command, but for most people who aren’t psychopaths, there is some threshold level of required motivation before one can trigger the adrenalin glands.