Two US family offices are likely to be scratching their heads after a cleantech venture called Faraday Grid, which promised to revolutionize electric grid technology, went into receivership. The collapse is a good example of the downside of investing in expensive cleantech ventures that often promise a lot but don’t deliver.
The day WeWork’s was due to go public, August 15, Faraday went into receivership
WeWork’s founder Adam Neumann’s family office 166 2nd Financial Services is likely to have taken a hit from the tech billionaire’s investment in the cleantech company earlier this year. Zoma Capital, the private investment office founded by Lucy Ana and husband Ben Walton, a member of America’s wealthiest dynasty the Walton family who owns Walmart, might also be asking some questions about Faraday, or at least a business they funded, which backed the Scottish-based venture.
Neumann, probably through his newly founded family office, invested £25 million ($30 million) last January in the Faraday. Reports suggest Faraday’s founder and CEO Andrew Scobie met Neumann in New York, both got on well, and the WeWork’s founder decided to back Faraday.
According to a detailed report in GreenTech Media, Neumann’s investment valued Faraday at a staggeringly high £2.7 billion, which mean attracting other investors at a later date at that valuation was going to be difficult.
Things started to unravel when, according to the report, Neumann’s family office hired Ilan Stern, formerly of family office Soros Fund Management, to manage 166 2nd Financial Services. Stern began to question some of Neumann’s investments, including Faraday, mainly as it had no sales and a very high burn rate.
Then the WeWorks initial public offering was pulled, which meant Faraday, having burnt through much of Neumann’s investment, wasn’t going to get new funding from the New York-based billionaire. The day WeWork’s was due to go public, August 15, Faraday went into receivership.
Zoma Capital’s involvement is more tangential. The Denver-based family office, which is concentrating much of its investment efforts into cleantech, has very deep pockets. This time last year, Zoma ploughed CA$200 million into Amp Group, a Toronto-based cleantech investment group, set up by two financiers, Dave Rogers and Paul Ezekiel.
A year earlier, Amp backed Faraday with an undisclosed sum of money, but it was probably a sizable sum given the press release announced the investment as a strategic one. Amp’s Ezekiel was also appointed to the board of Faraday.
Amp’s investment in Faraday was before Zoma’s cash injection, so there’s no suggestion Zoma lost money directly from the episode. Ezekiel, according to the GTM report, put the breaks on any more money coming from Amp. Nevertheless, Zoma is unlikely to be backing any unproven grid technology ventures anytime soon.
Cleantech ideas, like biotech, sometimes cost considerable sums to develop a profitable business. Often things don’t turn out well like the Faraday case and even more spectacularly the electric car battery producer, Better Place, which famously sucked in nearly $1 billion of investment only to collapse in 2013 six years after being founded.
But the opposite is also true. In fact, if cleantech ventures do work, the rewards aren’t just monetary, they also benefit society, as companies that help to lower global carbon emissions help to improve the environment we all live in. That’s a big reason why investors like Zoma Capital and many other family offices will continue to back cleantech initiatives.