What happens when a unicorn dies?

By Madhvi Mavadiya | 25 April 2016

Powa Technologies, former British unicorn, collapsed into administration at the start of this year and now PowaPOS, the last remaining business of three has been bought by Supercom, the Nasdaq listed Israeli technology firm. We always seem to hear more and more about how fintech startups are breaking boundaries and are achieving the unattainable, but will we see unicorn deaths become increasingly more prevalent this year?

According to CityAM, PowaPOS, a mobile payment system similar to iZettle and Square, brought in the majority of the revenue which stood at £4.9 million last year and Jeff Dumbrell, CEO of PowaPOS, remains positive regardless of the sale. “We will be announcing some exciting changes to our organisation over the coming weeks, and remain fully committed to protecting our customers’ investments including continuity of service across our range of solutions.”

Dan Wagner, Powa boss, made an interesting remark last week on the BBC Radio 4 In Business show however, and described the collapse of his business as random. “It’s the business equivalent of walking across the street and being hit by a car. It is one of those things which sometimes happens which is completely random.

It doesn’t necessarily reflect on what we were building, it doesn’t necessarily reflect on the capability or the experience or the management capacity to deliver value. It doesn’t necessarily reflect whether or not the valuation was right or wrong. Certainly in this case I can tell you it was just one of those extraordinary things that should never have happened.”

With £2.3 million spent on “accrued rent” for Powa’s space in London’s Heron Tower in 2015, Vikram Mansharamani, Yale lecturer, told the BBC that it was clear that the business had not been succeeding for a long time. “There was a fundamental breakdown in this model. It was not able to produce returns for the invested capital.”

CityAM broke down the costs of growing a unicorn in a recent report and while £53 million was spent on equity investment in 2013, £29 million was spent on debt financing in 2015, as well as a failed repayment of £42 million which led Powa into administration after the renegotiations were unsuccessful.

Apart from being big spenders, what actually went wrong for Powa Technologies? Business Insider revealed that most of the companies that Powa claimed to have signed up for PowaPOS had only “signed non-binding letters of interest in the technology.” The company claimed to have big brands like Adidas, Carrefour and Universal Music and Reebok on their books and the CEO showcased this to the Telegraph in 2014.

You don’t win brands like Adidas when you’re a startup business, before you’ve even launched a product, without having truly transformational technology. Most would say, ‘I’ll wait and see’.” Alongside this, BI reported that there were complaints of bad management and wild spending, which is why the new business was unprofitable in the early stages.

What happened to Powa should act as a warning for other fintech startups that are heavily invested in, according to Vanity Fair, that reported on how tech companies, especially in Silicon Valley, are getting serious now. “Investors are becoming more cautious about their bets, and where burn rates used to go unfettered, founders are now focused on metrics like profitability. Startups that have failed to button up and get serious are paying the price.”

Bill Gurley from Benchmark, a well-known venture capitalist who awaits the Silicon Valley apocalypse, had a similar view. “As we move forward, it is important for all players in the ecosystem to realise that the game has changed,” Gurley said. As well as this, Lowercase Capital’s Chris Sacca said that this is the time of change.

We’re coming out of an era now where they all were chasing the same deals, trying to collect the same logos for their resumes, and marking up and encouraging the markup of their own investments for the sake of ego. There will definitely be a time of reckoning.”

Despite this, all three businesses that Powa created have been sold to separate entities and now we will have to see what becomes of the failed unicorn

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