Deal to Watch: ALFADAN Designs Better Boat Motors

Key Stats:

Summary

The ALFADAN 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

More and more Americans are getting involved in recreational boating. The industry contributed an estimated $170.3 billion to the US economy as of 2019, up significantly from the $49 billion of economic activity measured in 2012. Retail unit sales of powerboats continue to increase by several percentage points each year. Boating is far from a niche pastime. More than a third of Americans went boating in 2016. 

However, boat owners face equipment constraints that have persisted for decades. Boaters seek to spur their boats faster and faster but have limited options. They are met with suggestions like bolting a supercharger to the engine or even adding a motor. These changes risk catastrophic motor failure and may be illegal due to restrictions on horsepower.  

Boaters want an innovative motor solution that improves performance without compromising safety, weight, or fuel consumption. A new product would be poised to capture part of the $17 billion market for outboard motors.

Solution

ALFADAN is a marine outboard motor design and manufacturing company that has pioneered the next generation of boat motors. ALFADAN is “redefining the limits of the high-performance outboard engine.” 

The company argues that existing outboard engines (which typically mimic the V6 and V8 design of automotive engines) cannot keep up with the power required to propel ever-larger boats. Some boats require 4-6 outboard engines to achieve sufficient speed. However, that quantity of heavy engines causes drag that increases fuel consumption. 

The patented ALFADAN engine is designed to overcome these issues. The company has created an in-line, four-cylinder engine (i4). I4 engines have historically faced a secondary imbalance issue caused by inconsistent piston speed, but ALFADAN redesigned the i4 drivetrain to reduce this imbalance. The ALFADAN design has 50% fewer moving parts and 50% less weight with 50-100% more horsepower. The company has unlocked an engine with less drag and better performance for boaters. 

Beyond innovating in motor design, ALFADAN also has plans to introduce a new motor service model to the outboard market. All ALFADAN engines will share critical service parts. Engine owners will receive a case of all service parts needed for their engine. By sharing these parts and simple service videos, ALFADAN will allow any marine mechanic in the world to service their engines. This simple service model ensures convenience and reliability for boaters. 

ALFADAN has developed a patented engine design and is currently in the prototyping phase in partnership with MAHLE Powertrain, a global engineering consulting and manufacturing firm. Upon launching production, the company plans to outsource manufacturing of its engines’ major components to industry leaders. All of the parts will be assembled, tested, and shipped from ALFADAN’s future facility. 

The Team

Albert Araujo is ALFADAN’s founder and CEO. Araujo previously founded Amtech Industries, a natural stone manufacturer and seller that operated between 1989 and 2017. Araujo also founded an airline engine company and, separately, an aircraft engine testing company. He holds a BS in Aviation Maintenance Management from Embry Riddle Aeronautical University. 

Araujo is joined by ALFADAN President and COO Omar Jimenez. While Arujo lends manufacturing and engine expertise to the company, Jimenez is focused on business operations. He previously served as the COO and CFO for a public technology development company, the President of a public real estate development company, and the President of a public leisure and business travel company. He holds two degrees in Business Administration from the University of Miami and an MBA from Florida International University. 

Both executives report that they are avid boaters and that ALFADAN engines are built “by boaters for boaters.”

Growth Plan

ALFADAN is raising capital to fund ongoing research and development on their new, patented outboard motor design. They will devote 80% of funds raised to R&D and the remainder to employee salaries. 

After completing the prototyping and validation phase through its partnership with MAHLE Powertrain, ALFADAN will pursue manufacturing and begin selling products. The company estimates that prototyping and testing on its first flight of engine designs will be complete within 30 months. 

The company acknowledges that its engine technologies could have future applications in aerospace, power generation, and commercial automobiles. However, it remains entirely focused on marine use for the foreseeable future.

Why We Like it

• Seasoned executive team: ALFADAN’s founder and President are experienced entrepreneurs and business builders who have created and operated successful businesses. CEO Albert Araujo has engine manufacturing expertise, albeit in the airline industry, and seemingly leveraged that expertise to lead the development of ALFADAN’s innovative product. Between engineering, manufacturing, and business capabilities, ALFADAN’s team is poised to capitalize on their engine innovation.  

• Competitive advantage in product manufacturing: Sophisticated manufactured goods companies have a competitive advantage becausetheir innovations are significantly more difficult for a competitor to replicate and produce at scale. ALFADAN also holds a patent on its engine design, which restricts competitors even further. Beyond reinforcing the company’s product moat, this patent may also hold intrinsic value for future licensing opportunities.  

• Opportunity to impact the growing marine market: The outboard engine market is projected to grow at a CAGR of 7% between 2019 and 2025 and is currently sized at $10 billion. As the popularity of recreational boating continues to grow, more and more boaters face a performance issue in powering their boats. ALFADAN’s projections of 50-100% more horsepower for 50% less weight are attractive statistics for boat owners. Therefore, ALFADAN has the opportunity to generate significant revenue from a growing pool of boat enthusiasts. 

Rating

Boating is a classic pastime on oceans, lakes, and rivers around the world. ALFADAN has developed a product that stands to offer significant benefit to boaters seeking better performance from their watercrafts. The ALFADAN founding team has experience in both engine manufacturing and business building. The company has an advantage over competitors that lack their engine design patent and head start in prototyping and testing. 

While ALFADAN offers an exciting innovation in the outboard engine market, investors should note that the business is pre-revenue and will remain in that state for the foreseeable future. Companies designing and producing complex manufactured goods require a large quantity of research and development capital before the product is available for sale to consumers. This extended lack of revenue poses inherent risks to investors’ returns. ALFADAN does hold a patent on its engine design, however, which indicates that the company may hold intellectual property that could prove valuable even if engines cannot be produced.

The most obvious exit path for a company like ALFADAN is strategic acquisition by a larger engine manufacturer. Players like Yamaha, Mercury, and Honda dominate the outboard engine market (and markets for other types of engines). If ALFADAN is successful in winning some portion of market share with its new high-performance engine, one of those players may choose to acquire the company. Yamaha is clearly acting on this strategy. In 2017, it acquired two U.S. boating manufacturers toward its goal of “competing in the…. Global marine market.” While less likely, it is also possible that ALFADAN’s technological innovation is so successful that the company expands to engine manufacturing across multiple industries, ultimately growing into a publicly-traded manufacturing business to rival existing leaders. 

Investors may have to wait a while before ALFADAN proves the success of its new marine outboard engine. However, early signals indicate that the company’s innovation will provide compelling performance improvements to consumers and generate value. Therefore, ALFADAN is a Deal to Watch.