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Illustration: Sarah Grillo/Axios

Fuel cell maker Bloom Energy went public in July 2018, six years after a scandal in which its bankers were found to have misled prospective investors. But Axios has learned that Bloom itself has a history of playing fast and loose with its numbers.

Why it matters: Bloom was one of Silicon Valley's earliest unicorns, with a high-powered board of directors that includes Colin Powell and John Doerr. It's a cautionary tale of what can happen when narrative overtakes results.

While still a privately-held company, Bloom repeatedly disseminated unreliable data and rose-colored projections, according to documents reviewed by Axios.

  • For example, some prospective investors in 2009 were shown a "Google customer testimonial" that claimed the search giant had experienced only a single equipment failure that was quickly fixed.
  • Confidential board documents from 2011 show that Bloom replaced two dozen pieces of equipment for Google in 2008, due to "early life failures."
  • Bloom declined to explain the discrepancy when asked by Axios.
Founding story

Bloom Energy was formed in 2001 by K.R. Sridhar, a University of Arizona professor who had been working for NASA on a fuel cell that would help support life on Mars by producing air and fuel from solar energy. When the mission was scrapped, Sridhar redirected the technology closer to home — developing fuel cells that could power commercial and industrial buildings on Earth, without reliance on the electrical grid.

  • Kleiner Perkins, the venture capital firm known for early bets on Google and Amazon, soon made its first-ever "clean tech" bet by investing in Bloom. John Doerr, the Kleiner Perkins partner known for backing Amazon and Google, joined Bloom's board of directors.
  • By 2009 Bloom was valued at well over $1 billion by its venture capitalists. That was also the year that former Secretary of State Colin Powell, a strategic limited partner with Kleiner Perkins, was added to Bloom's board.
  • In February 2010 the company was profiled by "60 Minutes." In that piece, Doerr claimed that Bloom's technology "is cheaper than the grid."
    • In 2010, commercial customers in California paid an average of 13.1 cents per kilowatt hour, per state records.
    • Bloom's technology in 2010 generated electricity at a cost of 36 cents per hour, according to an internal board document.
    • A Kleiner Perkins spokesperson says that Doerr's claim was based on applicable federal and California tax credits in 2010 but, when pressed on the math, referred Axios to Bloom. The company declined to elaborate.
The scandal

More than a year before "60 Minutes," Bloom hired a Chicago-based investment bank called Advanced Equities to help raise money.

  • This was fairly unusual for a Silicon Valley startup, but Advanced Equities already had a lengthy track record of fundraising for portfolio companies of Kleiner Perkins and fellow Bloom investor New Enterprise Associates.
  • In 2008 it employed hundreds of brokers who would pitch startup investment opportunities to wealthy individuals who flew below Wall Street's radar (e.g. dentists, local business leaders, etc.).

Advanced Equities began raising $150 million in Series F funding for Bloom at the beginning of 2009, and hit its part of the target that May. The shares were to be sold at $18.52 each, giving the company a valuation of $1.6 billion.

That October, an Advanced Equities broker named Jim Kozak learned that Bloom had cut its three-year estimates in half, suspended shipments in Q3 2009, and delayed its IPO plans. He circulated a memo that read, in part:

"It is very clear that [Bloom executives] were not entirely telling us the truth during our fund raising. I would go as far as saying they completely misled us. There is no question in my mind we should be holding a gun to their head on this for our clients. They cut their estimates in half for the next 3 yrs and pushed the IPO out to 2012... Clearly the upside is there, but they took advantage of us and I am tired of that."

The memo went off like a nuclear bomb inside of Advanced Equities. Brokers began wondering if the firm's leadership — namely, co-founders Dwight Badger and Keith Daubenspeck — intentionally passed on bad information, and at least one took those concerns to federal securities regulators.

In September 2012, the SEC charged Advanced Equities, Badger and Daubenspeck with misleading investors. The accusations were devastating:

"Badger said in the 2009 offering that the energy company had more than $2 billion of order backlogs when the backlog never exceeded $42 million. He also said it had a $1 billion order from a national grocery store chain even though the store only had placed a $2 million order and signed a non-binding letter of intent for future purchases. Badger said that the company had been granted a U.S. Department of Energy loan exceeding $250 million when it had applied for a $96.8 million loan."
— SEC statement

The defendants agreed to settle. Advanced Equities shut down two months later, leaving hundreds of people out of work. Neither Badger nor Daubenspeck ever worked in the securities industry again.

A surprising disclosure

Bloom Energy filed to go public in June 2018, and disclosed that it would issue hundreds of thousands of shares to Badger and Daubenspeck, the very people charged with misleading Bloom investors.

  • Bloom referred to it only as a "dispute settlement."
  • Weeks later, Bloom updated its IPO prospectus to reflect a new lawsuit from Badger and Daubenspeck, "seeking to compel arbitration and alleging a breach of a confidential agreement from June 2014."
  • The complaint remains under court seal, and Axios has not reviewed a copy. A motion to unseal the complaint has been made by the plaintiff in a separate class action lawsuit against Bloom.

Axios has learned from multiple sources that the parties' original agreement came after Badger and Daubenspeck threatened to sue Bloom for supplying at least some of the faulty information that ultimately led to the failure of Advanced Equities (a charge that Bloom denies).

  • It's unclear if the SEC investigated Bloom itself but, either way, the government did not file charges against the company.

The subsequent lawsuit is believed to have come after Badger and Daubenspeck (or their lawyer) read Bloom's IPO prospectus and felt that the company had previously misstated its technical and financial progress. In other words: The shares could be worth less than anticipated in June 2014.

  • Bloom went public in July 2018 at $15 per share, with its stock popping 30% on its first day of trading.
  • The euphoria was short-lived: Yesterday, Bloom closed trading at $2.70 per share.
Doesn't add up

Badger and Daubenspeck both attended a Bloom board meeting on March 3, 2009, in the midst of their fundraising push, per the SEC complaint. Several pieces of material information presented during that meeting were questionable, according to an Axios review of the board books. For example:

First costs, including materials, labor and installation.

  • During the March 2009 meeting, Bloom said that Q4 2008 first costs were $9,494 per kilowatt. It predicted first costs would drop to $6,743 by July 2009.
  • Subsequent board documents, however, show that full-year 2009 first costs averaged $9,924, and didn't get below the July 2009 projection until two years later.
  • Bloom tells Axios: "This was driven by developing new vendors and supply chain partners, as discussed above and not meeting the timing we had projected as we matured our supply chain."

Hot boxes, the "chambers" in which fuel cells reside.

  • During the March 2009 meeting, Bloom showed hot boxes cost $1,960 per kilowatt as of December 2008.
  • Subsequent board documents show hot boxes cost $5,000 at the beginning of 2008 and $3,500 at the end of 2008.
  • Bloom tells Axios that the internal definition of "hot box" changed over time, thus explaining the discrepancy, although that nomenclature change was not noted in board books.

Total costs

  • During the March 2009 meeting, Bloom said that total costs of a box (without incentives) in 2009 would be $10,000 per kilowatt.
  • Subsequent board books show it began 2009 at $19,362 per kW, and remained above the $10,000 per kW mark for each quarter of 2009.
  • Bloom tells Axios that the $19,362 figure relates to its initial Google install in 2008, but declined to elaborate on the remaining discrepancy.

Gross profit

  • During the March 2009 meetings, Bloom said it expected to gross profit to be negative $15 million for the year. This was based on expectations of selling 50 systems and losing $303,000 on each one.
  • Subsequent board documents show gross profit of negative $55 million, after losing nearly $3.3 million per system (32 sold).
  • Bloom declined to explain the discrepancy when contacted by Axios.

Bloom also made questionable statements in later years.

In November 2012, then-Bloom CFO Bill Kurtz told Fortune that Bloom had become gross margin positive in 2012 and was on track to become profitable in 2013.

  • Board documents show that Bloom was gross margin negative for 2012, despite hitting 1% gross margin positive for Q2 2012 and Q4 2012. At the time Kurtz spoke with Fortune, the company's most recently-completed quarter was gross margin negative.
  • It did not become profitable in 2013.
  • Bloom had a net loss of $336 million in 2016, $281 million in 2017, and $258 million in 2018.

In its IPO filing, Bloom neglected to disclose anticipated costs to replace "boxes" at a utility-scale deployment in Delaware.

  • Axios first identified the oversight in November 2018, suggesting the cost would be between $100 million and $150 million.
  • Bloom called it immaterial.
  • The company later disclosed that the replacement costs would be around $130 million, although effectively assumed via a new investment by The Southern Company. For context, Bloom generated $742 million in 2018 revenue.

Short-seller Hindenburg Research published a paper in September purporting to show that Bloom has around $2.2 billion in undisclosed liabilities related to service contracts on its boxes. Bloom disputed those findings.

Expand chart
Data: Yahoo! Finance; Chart: Axios Visuals
What it means

None of this absolves Badger or Daubenspeck for passing on misinformation to investors. But they've privately insisted that their faulty numbers originated with Bloom executives, per sources, which is made more plausible by how often Bloom changed what it told its own board of directors.

For example, the SEC accused Badger of claiming that Bloom "had more than $2 billion of order backlogs when the backlog never exceeded $42 million."

  • The SEC is correct. At the same time, however, Badger might not have made up the $2 billion order backlog out of whole cloth.
  • A consultant to Bloom in 2009, not affiliated with Advanced Equities, writes in his LinkedIn profile that he helped Bloom "fill a multi-billion dollar customer order backlog." The consultant did not return a request for comment.
  • Bloom also regularly grouped closed deals with letters of intent under the "backlog" heading, per internal documents.

Bloom tells Axios that none of the misinformation passed on by Badger or Daubenspeck, as cited by the SEC, originated with the company or any of its executives. It adds:

"Rather than focusing on things that are 10 years-old, Bloom Energy is focused on moving forward with our business, executing out plan, and disrupting a 135 year-old entrenched technology and business model... Bloom Energy's value proposition and investment thesis is more relevant now than it has ever been."

An attorney for Badger and Daubenspeck declined comment, citing pending litigation.

The bottom line is that privately-held Bloom was either sloppy or intentionally deceptive, and that history has found its way into current litigation for a company that is now publicly traded.

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