3 Things for Microcap Investors to Monitor after New Heliogen CEO’s Shareholder Letter

Writing candid shareholder letters is an important exercise for microcap CEOs, as I detailed in IR Magazine. So when Heliogen’s newly appointed CEO, Christie Obiaya, published one on February 16th, it garnered attention. For those that care about decarbonization, we want to root for companies like Heliogen, as we may very well need to “unlock the power of sunlight to replace fossil fuels.” But, since going public via SPAC at a $2B valuation, its market capitalization dropped to ~$59M at today’s close, and the company is even at risk of being delisted from the New York Stock Exchange (NYSE). Heliogen’s founding CEO, Bill Gross, was recently terminated and subsequently resigned from its board of directors. While its “breakthrough” technology may truly be “disruptive,” Heliogen must find product-market fit and then successfully scale it. 

As a retail investor, I’m interested in microcaps that are building real companies that want to be “weighed” over the long-term, not those merely hoping to become meme stocks. If one is considering putting his or her hard earned, after-tax dollars at risk, these three aspects of the shareholder letter should be watched closely.

1. Culture…Redefined

When Satya Nadella became the CEO of Microsoft, following Bill Gates and Steve Ballmer, Reid Hoffman referred to him as a “refounder.” Similarly, Christie Obiaya is a refounder, taking over for Bill Gross. As Nadella said, “If your company is going to be successful, it will outlast your founders. If it’s going to outlast that founder, the handoff is going to be super critical.” However, looking at Bill Gross’ letter, that handoff isn’t without conflict, and there are likely team members with close ties to the founder. Ironically, Bill Gates is even an investor in Heliogen. Regardless, Ms. Obiaya is tasked with redefining the corporate culture and making sure that everyone is aligned going forward. 

Having been brought into companies as a chief marketing officer, chief innovation officer, and strategic advisor, I can attest that inertia is real. Even if a company is struggling, change can be very hard for people, but it’s absolutely paramount that the team is committed to a standard, adding only talented people who improve that standard and removing those that don’t. As Lou Gerstner Jr. said, “Until I came to IBM, I probably would have told you that culture was just one among several important elements in any organization’s makeup and success — along with vision, strategy, marketing, financials, and the like… I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.”

2. Product-Market Fit via Customer Discovery

Heliogen may have exciting technology, but it needs substantive revenue, en route to a proven business model. Ms. Obiaya’s letter acknowledges this and mentions that the company’s industrial steam product is its best path to finding product-market fit. But, anyone who has ever gone through the customer discovery process to find product-market fit knows that it isn’t easy, and there are corporate graveyards filled with companies that tried to scale too early. As Marc Andreessen said, “You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close. And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.” 

Both culturally and strategeically, it’ll be worth watching if Heliogen can embrace a startup mentality. While Ms. Obiaya is extremely well-educated and has an impressive work background, startups are a unique type of company. Although she seemingly enjoyed success at Bechtel, one of America’s largest private companies, Heliogen is still very much a startup that happens to be listed on NYSE. As Jeff Bezos has said, “Big things start small. The biggest oak starts from an acorn. You’ve got to be willing to let that acorn grow into a little sapling, and then finally into a small tree and then maybe one day it’ll be a big business on its own.” But, a common mistake for microcaps is that they obsess so much about showing investors a large potential market that they lose sight of go-to-market strategy and what’s actually “serviceable” for the company to translate into near-term revenue. If you study the origins of most successful innovations, the Technology Life Cycle Adoption Curve has proven to be gospel (below).

The Four Steps to the Epiphany by Steve Blank

3. Changes in Ownership

Charlie Munger said, “Show me the incentives and I will show you the outcome,” as highlighted in “Dear Microcap CEOs, 6 Things Sophisticated Investors Need to See Before Buying Your Stock.” At the time of this writing, Bill Gross and his affiliated entities hold a significant amount of shares. It’ll be worth watching the SEC filings, especially those pertaining to beneficial owners. Who is motivated to see the company succeed, including employees at all levels? And if one is purchasing stock, it can be wise to know the most significant co-investors. 

Personally, I’m rooting for companies like Heliogen to thrive, and I am empathetic to what has likely been a difficult situation leading to the CEO transition. But, as a potential investor, this is still a wait and see.

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

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