What does conviction investing mean for water?

摘要

Is loss of financial judgement just another of those weird side effects of the coronavirus, along with brain fog and loss of sense of smell? This month we have seen two similar membrane companies achieve extraordinary valuations in IPOs: NX Filtration at €550 million and Aquaporin at €200 million (see pages 10 and 11). Between them, the two companies achieved revenues of less than €2 million last year. These are my thoughts: 1) We are in an age of conviction investment. Last year we saw a new investment phenomenon emerge. It began when institutional investors concerned about Tesla's cashflows started to take short positions in the company. The company was rescued by investors who didn't care about the numbers, but believed in Elon Musk's vision. They bought the shares and ultimately changed the reality for Tesla. Musk was able to pull off two rights issues and end the year as the world's richest man. The same thing happened when short sellers took on mall retailer GameStop earlier this year. Conviction investors rallied round to create a new future for the company. The valuations that Aquaporin and NX Filtration achieved are similar. They don't make sense in this world. They only make sense in the world that their investors want to create. That is one where pollution can be eliminated, energy consumption can be dramatically reduced, and the world's water problems can be solved. 2) There is no conviction in venture funding. It is significant that both companies went for IPOs rather than further rounds of venture funding. People who run venture funds live and die by the exit valuations they achieve. It puts a pretty firm lid on valuation at about half what NX and Aquaporin achieved. We will probably see more small water tech IPOs as a result.