We are short shares of Allied Minds. Please click here to read full disclosures.
Sahm Adrangi, Chief Investment Officer, and Shane Wilson, Analyst, will host a conference call on Wednesday, September 23rd at 9:30am EDT / 2:30pm BST to discuss the company’s report on Allied Minds.
To participate in the conference call, please dial 855-780-5918 (United States), 0800-0288438 (United Kingdom), or 224-633-1732 (international), and reference the access code 46410660.
A replay of the call will be available following the call at kerr.co/alm-sept23.
Our full report is available here.
Allied Minds (LSE:ALM) is a London-listed, US-based firm that operates like a specialized venture capitalist, investing in early-stage technologies created by academic researchers and attempting to bring them to market. Trading at 7x book value and 3x net asset value – using the company’s own valuations of its subsidiaries, which we believe are baselessly optimistic – Allied Minds enjoys tremendous benefit of the doubt on the part of investors, who evidently believe that its magic touch has turned ~$340mm of cash raised into $1.8 billion of present value, embedded in a portfolio whose largest positions include such duds as an unprofitable vendor of specialty pasteurization equipment for nuts and prunes and the maker of expensive machines that enable slightly different methods of extracting small bits of frozen blood and feces from larger samples.
But Allied Minds has done nothing to deserve the market’s faith. In a world where most VC funds have failed to generate meaningful alpha and trade in the secondary market at significant discounts to stated NAV, it’s absurd for an investment vehicle with no objective evidence of commercial success to fetch a $1.2-billion premium. Since its inception almost ten years ago, Allied Minds has not sold any of its portfolio companies, has not taken a single one public, has not generated any material licensing revenues from its intellectual property, and has produced negligible revenue even from its “mature” subsidiaries. Indeed, of the five companies Allied Minds formed in 2006, four failed completely and were dissolved, while the fifth, Cephalogics, remains stuck in R&D mode, has at best a modest advantage over similar companies and research groups, and is still many years away from generating real revenue. Key Allied Minds personnel, including the company’s founder and the CEOs of its two purportedly most valuable subsidiaries, have checkered track records presiding over small-scale technology firms that went on to fail or go bankrupt. Simply put, there is no good reason to believe, as the company’s valuation implies, that this is among the best VC funds of all time.
For all of Allied Minds’ talk of “disruption” and “innovation,” its subsidiaries are developing products that are at best minor variations on existing alternatives, often in the face of significant competition and without plausible business models. Even supporters are hard-pressed to justify the current price: one sell-side firm has maintained its “buy” rating even though its own target price (already ridiculously rich at 2x “fair” value) suggests that the stock is overvalued by 61%. Allied Minds is a true triumph of mind over matter, style over substance – a dressed-up collection of high-risk, low-reward gambles that we believe has at least 70% downside.
Please read our report for our full analysis.