It seems like every long's dream is to have Bill Gates invest in his unprofitable and dying company. As long as the internet itself, ridiculous rumors have been touted on chat boards of companies that "Bill Gates will be investing!" KiOR, Inc. (NASDAQ:KIOR) saw that internet dream come true. On Oct. 21, KiOR announced that it received up to $100 million in funding. Part of that funding was up to $15 million from Bill Gates through his Gates Ventures LLC.
Investors may expected KiOR to soar on the news. Instead, the street yawned. KIOR closed down 5.8% that day and is currently down 9.2% from the financing announcement at the time of this writing.
While the press release touts the additional financing from KiOR's lender at a premium, it fails to go into details on the Gates financing. Investors instead must examine the 8K. In it, they'll find a few things:
1. The first $7.5 million isn't at a premium at all. Instead, it's actually at a discount of 10.9% compared to the previous closing price.
2. Bill Gates as everybody knows is a quite wealthy multi-billionaire. $7.5 million isn't exactly going to break his bank. His comments seemed lethargic at best:
"I was impressed when I visited KiOR's Columbus facility and learned more about the company's technology," said investor Bill Gates. "I am happy to be joining the other investors in support of KiOR's efforts to move its technology forward."
The words "support" and "efforts" sure make it sound like KiOR is not ready for prime time, despite its forecasts made back in Q2 that now has an army of class action lawyers swarming over it. Bill Gates token investment and comments are akin to dropping a few bucks in the donation bin at a dying museum out of respect and pity.
3. The second token Gates investment of $7.5 million is "contingent upon, among other things, the Company fully funding the Columbus II Project." This figure is now $400 million. What happened to the $225 million estimate given just a month ago? He's asking for a lot of financing backing to come in first before he commits an additional relatively tiny sum.
4. The discount to this second investment for Gates will be 25% with a ceiling of $2.897 per share. This means he will be immediately be at a minimum profit of 33.3% based on the discount. It also means if the stock price explodes for some reason, the most he has to pay is still $2.897 per share. So for example if the stock price is double that of $2.897 to $5.794 at the time, Gates will immediately have doubled his money. His immediate gain is anywhere from 33.3% to a theoretical unlimited profit, and then only if there's $400 million in financing backing him up.
The market has yawned at the Gates financing and for good reason. Other than the name "Bill Gates" attached to it, it's not a great deal for shareholders. In fact, it's arguably a bearish sign when a man as rich and charitable as Bill Gates is only willing to invest such a tiny amount of money with very low-risk terms and high contingency demands.