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Fisker: how to lose more than $1 billion in pursuit of Tesla

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Fisker Automotive — manufacturer of hybrid vehicles, have attracted and lost in the end nearly $1.3 billion.

The company's first car, the beautiful Fisker Karma, was to be Tesla Roadster's answer. But poor business management and a series of sometimes comical failures led to the bankruptcy of the startup in 2013.

Fisker is on the second place in the list of the biggest startup feylov in history. Here you can read about #1 — Solyndra.

Fisker was founded by renowned car designer Henrik Fisker. In the 90s and 2000s, Fisker was responsible for the appearance of such legendary models as BMW Z8, Aston Martin DB9 and Vantage. Fisker's last place of work was Tesla, where he worked on the design of Tesla S.

By 2007, when the wave of fashion for all “green” began to reach a peak, Fisker decided to launch its own car brand. Unlike the all-electric Tesla, Fisker has staked on hybrid engines.

The initial model of the brand — Fisker Karma — was to be the first serial hybrid with the ability to self-charge the battery (other hybrids of the time had a battery that was charged only when the internal combustion engine).

At the same time, the eminent designer was poorly versed in technical issues. In the absence of production experience, its solution was the active use of outsourcing. Fisker tried to buy everything ready on the market — from door handles to motors and chassis. The initial plan of Fisker meant that this approach will allow the startup to reduce the cost of production of the car three times, and the payback of the business comes with sales of less than 20 thousand cars per year.

The first institutional investor of Fisker at the end of 2007 was the famous venture Fund Kleiner Perkins. He invested more than $10 million in a young startup, But in addition to the money, Kleiner (at that time) had something more: a reputation as one of the best venture funds in history

Having previously invested in Amazon, Netscape and Google in the early stages, Kleiner dedicated three of his funds to klintech in the second half of the 2000s. Moreover, at the end of 2007, Kleiner attracted a partner of the famous fighter against global warming al Gore to invest in “clean” technologies.

It is noteworthy that Kleiner was originally eyeing Tesla. Managing partner of the Fund and the main cleantech are proponent of venture capital, John Doerr personally knew the Mask and believed in the potential of his ideas. Tesla conducted a competitive process of raising funds, but Musk would like to see in the shareholding of it Doerre. As a result, in the final Tesla chose from two proposals: from Kleiner, with a bid estimated at $50 million, and from VantagePoint, Tesla estimated at $70 million.

Musk, being an experienced entrepreneur, was ready to take Kleiner's offer, agreeing to a discount given the Fund's stellar reputation. His only condition was that Doerr should join the Tesla Board of Directors. But Doerr refused. The legendary investor felt that he was already sitting on too many boards. Eventually, Musk chose the VantagePoint offer (which he later had a corporate conflict with) and Doerr decided to invest in Fisker.

The availability of funding from Kleiner has opened the way for Fisker to the “big League”. Creating a car company from scratch is an extremely expensive event. And Fisker continued to actively raise funds for the launch of a series of Karma, using the name Kleiner.

As in the case of Solyndra, one of the important elements of Fisker's fundraising strategy was obtaining preferential public funds. And here al Gore's connections, recently awarded the Nobel prize, came in handy.

In 2009, the government approved the Fisker loan for $529 million as a Condition for funding was the involvement of third-party tools company burned so much that required many millions of additional investments for implementation of the plans.

But by the end of 2009, the venture capital market “green” investment began to go out of fashion. Funds one after the other folded cleantech program due to low oil prices and the outbreak of the revolution of shale gas in the United States.

To ensure the necessary amount of funding, Fisker took a non-trivial step: hundreds of millions of dollars was decided to attract less knowledgeable private investors. A key role in the organization of the process of raising funds was played by the broker Advanced equity Inc (AEI), through which eventually passed about $800 million invested in Fisker.

Brokers, in fact, are not so rare in the venture capital market. Most of them simply act as advisors in the process of raising funds (or even just brings startups with investors).

But some brokers are forming investment pools, speaking, including, and the role of the management company. Investors in pools are often individual investors — more sophisticated players usually fear such a non-transparent setup.

The presence of a star VC in the capital of a startup always facilitates the chances of forming a pool. Money is attracted to a wide range of investors. The process itself resembles an ordinary venture round (with the difference that only large investors can communicate directly with the company).

But in the case of Fisker, the practices used by AEI were on the verge of a foul. Aggressive sales, outright lies about the state of Affairs in companies, zero transparency — AEI rather resembled the boiler 80's, aggressively pushing penny drains (see Wolf from wall Street).

While AEI has worked exclusively with start-UPS, invested well-known venture capital funds: in addition to Kleiner, it was a Benchmark, NEA, Khosla Ventures and others. the Task of the broker was the organization of new rounds of financing in not the most promising companies from eminent portfolio managers.

Few investors who understand the venture got access to “exclusive” deals. Funds could continue to show paper returns in companies that would otherwise be written off. “Win Win”.

For its services, AEI took a (huge) one-time Commission of 10%, and in the future received 6% of the profitability of the transaction. However for 12 years in the market of profitable transactions at the broker almost was not.

The best deals AEI showed as a result modest by venture standards yield in the area of 2x. And most of the companies to which the broker to raise funds, and all went bankrupt.

The only earned always remained AEI. And Fisker became the most profitable transaction for the broker, which at one time even considered the possibility of carrying out its own IPO.

The situation with Fisker was complicated by the fact that AEI was responsible for attracting private investors from the very beginning. At the time of receiving Federal funding, the broker already had a significant share in the startup (aggregating hundreds of investors) and, like no one else, understood the current state of Affairs. And it was getting worse.

Even before the release of the first model Fisker held a large-scale PR company. Karma was named one of Time's 50 best inventions. Famous magazines praised the car for its design. Karma, which has not yet gone on sale, has already won various awards. WIRED called the machine “freaking’ hot.” Usher ordered chrome Karma for his ward, Justin Bieber.

But the reality was far from the picture projected into the market. A high degree of outsourcing inevitably tied Fisker to its suppliers. Know-how was not at Fisker, but dozens of contractors, with the synchronization of which the startup constantly had problems.

Disruptions of delivery dates from the very beginning became the scourge of the company, pushing the release of Karma for a year and a half: instead of the first quarter of 2010, the first Karma were delivered to customers only in the summer of 2011.

Did not work at Fisker and withstand the originally stated prices. If at first Fisker said that the retail price of Karma will be $80 thousand, by the time the market value of Karma in the minimum configuration exceeded $100 thousand.

Another startup problem was Fisker's sophisticated design vision. Many details had to be modified and customized to fit them into the car that the founder-designer wanted to see. Instead of a quick Assembly of ready-made parts, as Fisker initially saw the creation of Karma, the production of the car turned into a real design hell.

Complicating the situation and the fact that the company has launched in parallel to develop a new, cheaper car. Fisker Atlantic was presented to the public in the spring of 2012.

In addition to problems with suppliers, Fisker has become a magnet for trouble. Immediately after the release of Karma on the market, Fisker had to withdraw more than 200 cars. The reason was a problem with the battery.

The startup quickly had to fix the image and prove the reliability of Karma. Similar problems were present at the start and Tesla, so karma theoretically could still cause interest in the public.

But in the spring of 2012 on all hopes Fisker was put a fat cross. Known for its reviews, Consumer Reports magazine purchased for the Karma test. And the car broke down in less than 300 km.

In peddling the review edition called Karma car “full of problems”. Uncomfortable interior, long battery speed, noisy engine — the list of claims continued for a long time. Karma entered the top five cars with the lowest rating in the history of the magazine.

What is worse, the cause of the breakdown of the car in the Consumer Reports test was another serious problem with the battery. Its elimination, along with the recall of cars, cost Fisker $ 55 million.

Had not sweet and accumulator supplier company — also, in fact, a startup A123 Systems. Fisker was a key client of the company, and without its volumes A123 got into a difficult situation. The company was waiting for the beginning of mass sales of Fisker until the last. But a few months after the review, Consumer Reviews A123 began bankruptcy proceedings.

As a result, the battery manufacturer was sold for a song to a Chinese company, where it continued to exist under the name with an unconditional hint of continuity — B456. In the amount of A123 burned almost $900 million, some of which was attracted during the company's IPO in 2009.

The point in the suffering of the visionary named Karma was put by hurricane sandy, which hit the East coast of the United States in the autumn of 2012.

The flooding caused by the hurricane caused a short circuit in one of the Karma cars. The fire spread to hundreds of other Fisker copies delivered for shipment to its customers, quickly destroying the entire stock of cars.

All this time Fisker continued to receive new investments. In total, from may 2011 to August 2012, Fisker, with the help of AEI, was able to raise $525 million, estimated at more than $2 billion.

State funding was worse. Due to delays in the launch of Karma on the market, in the summer of 2011, the us Department of Energy suspended the issuance of new tranches on the loan.

In total, Fisker managed to get only about $200 million out of more than half a billion Federal loan. However, only the selected shareholders of the startup knew about it — neither the Ministry of Energy nor the company itself officially disclosed data on the termination of access to public funding within 9 months after the last transfer of funds.

All this time, AEI actively used the story about the presence of a Federal loan to lure the unsuspecting public into the capital of Fisker. Investors were given a startup wrapper with serious involvement from the great Kleiner, investors-promoters, like Leonardo DiCaprio and, of course, more than $500 million of free state money.

The investor's presentation provided forecasts of $12 billion in revenue for the 5th year. In 10 years, Fisker was to become one of the top car brands. And all this happened in parallel with balancing on the brink of survival business.

One of the first owners and investors of Fisker — Leonardo DiCaprio
So in November 2011, the company informed the Ministry of Energy that it had only three days of operations left. Another tranche of $37 million, received from private investors, saved the company for a short time, and it continued to raise funds.

After a year of failure, the Board of Directors of Fisker fired its founder and CEO in early 2013. But it was too late. Soon the company had to cut three-quarters of employees and start preparing for bankruptcy, which Fisker announced in November 2013.

Went to the bottom, and AEI. After the recognition of problems in Fisker, investors began to file mass claims against the broker, who promised a risk-free investment in the face of Fisker. But as soon as the “smell of fried”, AEI quickly curtailed the operation.

The claims were received by the founders of Fisker, and partners of Kleiner. The latter often attracted AEI to pitch to large private investors and also did not disclose important details about the complexities of the Fisker business.

Even despite all the difficulties of the car business, the size of the burned Fisker investment is amazing. Inexperienced Manager, Fisker made a lot of mistakes that cost the company.

The founder believed that Fisker would easily sell the 15,000 cars needed to break even. On this volume suppliers were ready to give good prices, and Fisker decided to take a risk: he ordered a significant part of the parts used in Karma in an amount sufficient for the production of the first fifteen thousand cars.

As a result, the market saw only about 2,500 Karma. The startup warehouse was bursting with unused kits. On sale of each car Fisker as a result lost $35 thousand, and spare parts for tens of millions of dollars remained not demanded.

Money “fell” from scratch. So nothing significant changes that Fisker decided to make in the design of Karma before the launch of production, cost the company more than $50 million.

Like most of the other participants in the list of the largest startup feylov, Fisker preferred not startup standard of living. The apogee was his own salary of $700 thousand a year, which Fisker did not reduce even when the company began firing.

The example of Tesla showed how difficult it is to create a car company. What the Mask has succeeded in doing — namely, successfully managing a business with ever-increasing losses — is truly unique to the startup world.

Many startups can really be planned-unprofitable years. It took Amazon fifteen years to figure out the model. Most of the tech startups entering the IPO are also losing money.

For the time being, markets can forgive a lack of profit. Especially if the money is invested in the reserve of future success, as in the case of Amazon, which has created a serious barrier to the money of investors in the way of any competitors.

But Tesla, even 9 years after the IPO, is still on the brink. So in 2019, Musk (once again) announced an anti-crisis regime in the company, continued to reduce staff and said that the company had a cache until the beginning of 2020. It is logical to assume that if instead of engineer Musk at the helm of Tesla was designer Fisker, the history of the company would have ended long ago.

Surprisingly, you can still buy a new Karma. Immediately after the bankruptcy of Fisker assets of the company in 2014 for $150 million bought the Chinese holding Wanxiang Group.

Wanxiang renamed the startup karma Automotive, hired more than 500 employees, including management, who came from Tesla and Cadillac, and in 2016 presented the updated Karma to the public.

Named Karma Revero, the car is worth at retail $130 thousand and practically does not differ from their original. Legend has it that Fisker made a good car, but just got too quick to bring it to market. Wanxiang has spent hundreds of millions to rebuild the automaker and eliminate all the flaws of the raw version of Fisker.

However, over the years since the beginning of the development of Karma market has stepped forward. And now karmowska 50 miles with no charge just seems like a mockery against the backdrop of modern electric cars. In a 2017 review, Bloomberg called Karma Revero “the BlackBerry among cars.” The headline of the article sounded like an unconditional sentence: “do Not buy Karma Reviero. Buy Tesla. Or any other car.”

But the Chinese are not discouraged. At the beginning of 2019 Karma presented its new (old) car —Revero GTS at Auto Shanghai. In fact, a faster version of the usual Karma with the engine from BMW i8 and acceleration up to a hundred for a couple of seconds longer than the Tesla S sample of 2017.

Not waste time and the Fisker. In the classic style of silicon Valley, soon after the company's bankruptcy, Fisker took up a new startup.

Fisker Inc, of course, is engaged in the development of cars. The first product of the company should be a fully electric sedan EMotion, which will be able to overcome on one charge more than 600 km.

Such an impressive mileage the car can achieve through the use of a new type of solid-state batteries developed by the company. Investor battery of direction was made by Caterpillar.

According to the tradition laid down in the previous startup, one car is not enough for Fisker. The new Fisker is also developing a second model — an electric self-managed city Shuttle. It is believed that the first large-scale use cases of self-driving cars will come from such niches.

In a similar direction for almost five years successfully developing a startup, which is led by the former Deputy Minister of communications of Russia Denis Sverdlov. His Charge, located in London, is already actively raising the megaround by hundreds of millions. So it's possible that Fisker made a more reasonable bet this time.

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