UK e-commerce service Powa Technologies, once valued at £1.8 billion went into receivership after the lead US investor called in the £200 million loans it had made to the business.
It turns out most of 1200 corporate clients the company had claimed as clients were actually expressions of interest in the service rather than firm orders.
Powa now has the distinction of being the first of the tech unicorns to go broke – although it’s almost certain 2016 will see many of the companies with private billion dollar valuations join them.
While the focus on Powa’s demise will be the deceased unicorn aspect, the company’s story illustrates some business basics.
The key one is that sales only count when the money is banked, all too often cashflows, profits and valuations are inflated by booking income long before it’s received – if ever.
Another aspect is valuations are not cash in the bank, Powa may have been valued at £1.8 billion but it only had raised £250 million in capital along with a similar amount in loans. This was not enough to keep the business going at what must have been a spectacular burn rate.
While tech startups have unique aspects, the basics of business remain constant; Cashflow is king and adequate capital is essential. These are aspects managers, investors and employees need to watch closely.