Deal to Watch: Innovative, Aesthetic Wind Turbines

Key Stats:

Summary

The Flower Turbines team has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Alternative energy sources face many barriers which have prevented them from becoming fully mainstream. Take wind, for instance. Wind turbines are often considered unsightly, and they pose a risk to wildlife (mostly birds). They can be noisy. When placed too close to one another, they can create interference, which negatively affects efficiency. Some companies have worked on ways to engineer around some of these concerns, such as by making small wind turbines. However, even these have tradeoffs, since you often have to decide between having low noise, low efficiency turbines, and high-noise, high efficiency ones. One firm that is set on addressing these issues is Flower Turbines, an innovative startup in the small wind turbine space that believes it has the solution to what ails the industry.

Problem

Flower Turbines may seem like an odd name for a firm, but it is actually perfect since the company’s product looks nothing like a stereotypical wind turbine. Instead, it has an elegant appearance, akin to an elongated tulip bud. There’s a reason for that. The business has engineered its product in a new way. Because of this engineering, the firm claims its turbines overcome obstacles that are currently preventing wider-spread adoption of wind turbines. Their small build, currently at 1 meter, 2.8 meters, and 6 meters, allows them to be installed just about anywhere. Their design, representative of a flower, is aesthetically pleasing. In addition, they spin at a low rate initially (just 1.2 meters per second vs. 3 meters per second for many competing brands), allowing them to operate with significantly-reduced noise.

Even so, their build results in a product that can generate significant power in the right conditions. What’s more, interference from nearby turbines actually helps them instead of hindering them. By clustering the devices together, the force generated by their rotation helps to drive the spinning of other identical turbines nearby. This grouping helps to boost productivity by between 20% and 50% compared to a scenario where they operate apart from one another. Management claims that when placed in high-wind areas, they can result in a payback period for the buyer that is nearly 3.5 years earlier than solar offerings that would produce just as much energy. It is worth noting that this short payback period is in spite of the referenced scenario including a startup cost that is 43.1% higher than said comparable solar option.

These small, innovative wind turbines are the flagship products being built by Flower Turbines, but they are not the only offerings the business promotes. Through an acquisition, it is also working on wind and solar on-grid and off-grid charging stations for electric vehicles. In particular, the company seems focused on electric bikes and miscellaneous device charging.

Official 2019 results have not been provided yet, but we do know how the business fared between 2017 and 2018. In neither year did the company generate revenue. Its net loss of $59,262 in 2017 surged to a loss of $133,583 in 2018. Operating cash outflows were similar at $60,605 and $135,232, respectively. Given the long development cycle of the company’s products, this is not unreasonable to see. Even so, it does underscore that there is risk here that investors should monitor.

A Specialized Market

While the energy industry is one of the largest in the world, the small wind power turbine market is more niche in nature. Estimates vary wildly about its size. One source we looked at suggests that the market today is worth about $895 million. That same source estimates that the industry will grow at a rate of 14% per annum, eventually rising to $1.72 billion by 2025. Another source, meanwhile, has a different impression of the market. It sees the industry as a $6.93 billion opportunity today. If it’s accurate, the market should expand at a rate of 13.2% per annum, rising by 2022 to $8.87 billion.

A third source we examined broke up the market a bit more. It looked specifically at product type. According to its data, the market in the vertical category is worth around $2.16 billion today. The market for vertical and horizontal turbines is worth $5.87 billion on the whole. On-grid solutions account for $2.10 billion of this, while $3.77 billion is classified as off-grid.

No matter how you stack it, this opportunity is fairly niche, but growing rapidly. However, it’s important to remember that this isn’t the only opportunity facing investors. The company’s focus on EV charging infrastructure is also worth discussing. According to one source for that, the market today is worth about $6.08 billion. The expectation here is for the industry to grow at a rate of 44.5% per annum. If this holds true, it should expand to $55.35 billion by 2026. Another, even more aggressive, forecast estimates the market today to be worth $12.07 billion. It also believes in a high growth rate for the market, this time at 36.8% per year. Through the forecast period, 2027, this rate would imply a market that ends up being worth $95.98 billion.

Terms of the Deal

To maintain operations and to continue expanding and perfecting its technologies, the management team at Flower Turbines is conducting a second raise. They are doing this through an offering of common shares in itself. They are issuing units, priced at $30 apiece, with the intention of raising between $9,990 and $304,320. The minimum to invest per participant has been set at $300 and, as of this writing, the company has $196,650 pledged to its raise. This high participation is in spite of the company asking investors to accept a $26.02 million pre-money valuation. That’s incredibly high for a business that has yet to see any revenue.

An Eye on Management

Though there are multiple people working on Flower Turbines, the company is headed by one individual, its founder, CEO, and Director, Dr. Daniel Farb. In addition to running Flower Turbines, Dr. Farb is the CEO of Leviathan Energy as well. That startup also focuses on other related alternative energy sources. However, on his LinkedIn profile, Dr. Farb stated that the business is currently ‘on hold’ as he allocates his time toward Flower Turbines. Another company that has seen Dr. Farb’s leadership is UniversityOfHealthCare. In the past, he also worked as a patent consultant and writer. His educational experience includes degrees from UCLA, Yale, and Boston University School of Medicine.

Rating

Flower Turbines has been rated by our team as a Deal To Watch. This rating is based on the firm’s vision, progress, market opportunity, and other factors. Truth be told, if the business had some meaningful sales, it would be an excellent prospect for a Top Deal rating, but the lack of revenue is a concern. Its high valuation is troublesome as well. Add to this the net losses and operating cash outflows, and it’s just not possible to give the firm the highest rating we offer.

Having said all of this, we do believe that Flower Turbines presents investors with some attractive prospects. If the technology does prove viable commercially, it could be a real game-changer for the wind industry. This disruption would be especially true when you consider areas where wind turbines have not been good candidates for replacing fossil fuels. Add in the firm’s EV charging play, and it is indeed an interesting prospect for long-term investors to consider.