Death by Overfunding: Powa Technologies

There is no other company that illustrates the roller-coaster ride of a Unicorn as graphically as the United Kingdom’s Powa Technologies. Powa had helped put London on the Unicorn map by becoming one of the few multi-billion dollar ventures. Then with not as much as a whimper, it transformed into a Unicorpse with investors still struggling to understand what went wrong.

Powa Technologies’ Offerings

Founded in 2007 by serial entrepreneur Dan Wagner, Powa was formed to deliver a seamless experience across all purchase channels, keeping in mind the constantly moving consumer. As part of its vision, Powa offered three key solutions – PowaWeb, PowaPOS, and PowaTag. PowaWeb was a cloud-based platform that powered e-commerce on a retailer’s website and provided it with access to a secure payment gateway. PowaPOS was a mobile and tablet-based point-of-sales (POS) solution that could integrate all POS peripherals and software applications in one design. But its biggest offering was PowaTag, a mobile application that claimed to be able to enhance a retailer’s digital strategy.

PowaTag boasted of features that could allow print ads, radio ads, and web-ads to become points of sales for the retailer. As part of the strategy, it offered a QR code, a PowaTag Code that could be scanned, a Touch button on an online portal that could be clicked, a URL that could be embedded in social media to allow shoppers to go directly to checkout, and an audio watermark that could be used to convert a live or recorded broadcast to a sale by directing the app to take the shopper to a series of screens to make the purchase. In a nutshell, it was aimed at converting every POS into a sale.

While PowaTag had big ambitions, it failed on execution. The solution was rumored to be rife with bugs and ultimately did not attract as many retailers as the company boasted. By the start of 2016, Powa claimed that it had signed up with over 1,200 retailers globally for the PowaTag app. But more recent findings have revealed that those documents were just letters of intent and not formal contracts to allow the companies to work together.

Powa Technologies’ Financials

Powa earned revenues by charging the merchants a transaction fee ranging from 40 cents or 10 basis points per transaction, whichever was higher. It did not disclose financials, but according to market reports, at its peak, the company was delivering annual revenues of mere £4.9 million (~$5.9 million). The revenues are rather low because the company claimed it was in a pre-revenue stage.

Powa had been venture funded with $225 million in investment from Wellington Management and Bay Bond Partners. Its last funding round was held in November 2014 when it raised $80 million from Wellington Management at a valuation of $2.7 billion. The round had put Powa in the Unicorn club as it was valued at a rather modest $400 million during funding in 2013. By the end of its last financing round, Powa was looking to list in 2016.

Powa Technologies’ Fall

But 2016 unfolded in a very different kind of exit for Powa. Powa began the year on a very positive note after its big win in China. It had announced at the end of 2015 that it had partnered with UnionPay Network Payments that could help bring PowaTag to China’s 1.3 billion consumers. David Wagner said that the deal had “trumped Apple Pay” and others looking to enter the country. But that was not really the case. Apple Pay did enter China soon enough and UnionPay denied any relationship with Powa since the agreement was with an intermediary and not directly with UnionPay.

By the beginning of 2016, Powa was in trouble with cash. Many believe that the China deal was being used to drum up financing. It had run out of cash, was in severe debt, and was doing all it could – right or wrong – to get investors interested. It was not having any luck raising funds despite firms like Goldman Sachs making internal presentations valuing it at $16 billion-$18 billion in September 2015 and on a clear path to be worth $50 billion with revenues of $5.5 billion by 2018. In 2016, its biggest investor Wellington Management had called in the loans and Powa was forced into liquidation. By February of 2016, Deloitte was appointed as liquidator to handle the offloading of assets.

At the time of liquidation, Powa had under a quarter million dollars in cash, a debt of $16.4 million, and payroll for 311 employees to worry about. Within a month, the assets were sold off and employees were either laid off or their contracts bought over by new owners. PowaTag was bought by a consortium led by entrepreneur Ben White and PowaWeb was bought by UK-based digital business group Greenlight Digital for undisclosed sums to end the stellar story of the Unicorn called Powa.

Powa’s crashing failure is attributed to a failed product and unchecked spending fuelled by overfunding from investors. Wagner was known to throw lavish parties at posh Mayfair addresses and the company was operating out of prime rental offices at the top of the Heron Tower in London. In 2015, it recorded a loss of £31.5 million (~$38.4 million) with the bulk of it being incurred due to salaries and rentals.

Despite the growing concerns, investors continued to fund its losses. They poured millions into Wagner’s claims that Powa could become a bigger company than Facebook or Google. They got carried away by their own greed forgetting that due diligence is also partly the responsibility of an investor.

Photo credit: Tony Webster/Flickr.com.

This segment is a part in the series : Death by Overfunding