How Powa bilked investors for £152m

Powa bilked investors for £152m because they got caught up by a great story. Every good investment has a good story, but plenty of bad ones have them too!

Picture the scene: you haven’t been paid this month. There are rumours the company is going under. It’s the first week back in January.

… Then you got an email from your CEO with the subject line “Long Live the legacy of David Bowie” with a picture of your boss in a photographer’s studio dressed in full 1970s glam rock getup, shredding an invisible guitar and smirking at the camera.

The company was Powa, and the CEO was a guy called Dan Wagner. I say “was” because Powa went into administration shortly afterwards, having burned through £152m of its investors’ capital.

It’s not funny really, and it illustrates something I bang on about constantly here on Risk and Reward and, even more often, in The Penny Share Letter.

The Powa debacle shows what happens to investors who get caught up by a great story. Dan Wagner told a great story about Powa’s future and he used it to extract over £150m from investors.

Stories can be dangerous. Every good investment has a good story… but the problem is that plenty of bad ones have them too! Read on to see how Wagner did it, and how to avoid getting bilked yourself.

Powa comes from the much-hyped London fintech scene. Its big product was the PowaTag, a system that allowed users to quickly buy things by scanning them with their smartphones.

The company told investors it had signed on over 1,200 retailers, including heavyweights like L’Oreal and Carrefour. But, it hadn’t. All it had were “letters of intent” from those big companies, which aren’t legally binding.

Dan Wagner pressed on anyway. He kept touring the world, talking the talk and drumming up as much capital as he could get his hands on. Not long ago he claimed to have won the business of China’s UnionPay, the biggest payments company in China. In an interview with the BBC, Wagner said:

“Why did China UnionPay decide to partner with a little British technology company? We’ve trumped Apple Pay and the rest of the world here.”

It turns out he’d gotten ahead of himself. The deal was with an intermediary, not UnionPay, and soon enough Apple joined the Chinese market. As Rory Cellan-Jones of the BBC put it,

“Mr Wagner needed to make plenty of noise about the China deal because Powa was running out of cash and was on a desperate hunt for investors to shore up its balance sheet. Somehow, all of that money from [its early investor] Wellington had been spent.”

Where did the money go? Powa took out two full floors in the new Heron Tower, right in the middle of the City. It hired hundreds of staff, 311 by the end. It ploughed £50m into technology and R&D, according to Business Insider’s estimates.

And another interesting one – the company was spending a disproportionately large amount on public relations and press at the end – £1.5m in 2014, according to BI. That’s typical of “chancer companies”. They depend on good write-ups and good coverage to keep the con going.

Wellington Management is the biggest investor in Powa. It’s a US based asset manager with over $900bn under management. So, it’s not small fry. Even it got burned. So what hope do ordinary investors have, you might ask!

Dodging chancers and blackguards has been one of my big themes on Risk and Reward. When you’re equipped to do that, investing in small businesses gets a whole lot more interesting (and lucrative).

If you want to see how I do it in The Penny Share Letter, have a look at this report I’ve put together. It shows how I generate a shortlist of the most promising small companies on the market. Not a glam rocker in sight.

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