ALFADAN is offering equity in a Regulation A offering at a valuation of $32.6 million. That’s a high price, particularly when compared to the valuation that the company previously raised at in 2020 ($15 million). In the space of a year, ALFADAN’s valuation has more than doubled. In ALFADAN’s initial raise, a $15 million valuation was primarily justified by the company’s patent, but that intellectual property hasn’t substantially increased in value a year later. Beyond that, it’s not clear that the company has made enough progress to justify the spike. While prototyping has now been completed, there are still years to go before the engine is brought to market. This valuation seems too speculative for a very early-stage company.

The global outboard engine market was valued at $9 billion in 2020 and is projected to achieve a 5% CAGR for the next six years. North America is home to more than 40% of global market share, bringing this continent’s market share to roughly $3.6 billion. The market’s growth is largely due to increased interest in recreational boating, which became more popular during the COVID-19 pandemic. 

ALFADAN’s total addressable market is in the low billions, which is already a fairly narrow opportunity. In addition, the company can only hope to obtain a small segment of that market for years to come. The outboard engine industry is dominated by huge players like Yahama (which owns 40% of global market share) and Honda. It will take years for ALFADAN to win over those customers, who might reasonably prefer to purchase complex mechanical products from trusted brand names. The presence of these established players reduces ALFADAN’s obtainable market size significantly. Overall, the company’s market opportunity is relatively small, despite overall growth in the boating industry. 

ALFADAN was founded by a pair of self-professed avid boaters eager to improve the performance of their watercraft. The company is led by Albert Araujo, CEO, and Omar Jimenez, president and COO. 

Araujo previously founded Amtech Industries, a natural stone manufacturer, which operated for almost 30 years. He has also held founding and leadership positions at several aircraft companies, working in engine research, development, and maintenance. He holds a BS in aviation maintenance management from Embry Riddle Aeronautical University and holds FAA airframe and powerplant certifications. 

Jimenez most recently served for four years as the COO and CFO for Monaker Group, a travel and hospitality company. Before that post, he held senior management roles (president, CFO, etc.) at various other firms, ranging from the accounting industry to flooring and cabinets. Jimenez holds dual BBA degrees from the University of Miami and an MBA from Florida International University.

The ALFADAN team is still small and has a couple of notable gaps. While CEO Albert Araujo has worked in the engine industry in the past, it doesn’t seem like he has the precise engineering and manufacturing experience that would be helpful to bring the ALFADAN motor to life. The company also lacks a sales and marketing perspective, which will become more and more important as products become ready for market. While the ALFADAN co-founders are deeply experienced, they don’t have specific credentials that make them compelling founders in the outboard motor industry. 

If ALFADAN can successfully bring its proprietary i4 engine to market, it will benefit from strong differentiation from competitors as well as a first-mover advantage. The entire premise of ALFADAN relies on distinguishing between traditional outboard engines (often modeled on V6 and V8 automotive engines) and ALFADAN’s new and improved four-cylinder design. Engines with four cylinders are typically hampered by a secondary imbalance issue caused by inconsistent piston speed, but ALFADAN invented a way to solve this issue. That redesign is the basis of ALFADAN’s patent and the company’s source of differentiation. 

Of course, it’s too early to say whether ALFADAN’s engine will successfully launch and prove its efficacy in comparison to outboard alternatives. If the company achieves its goals, it will be a leader in cost-effective, high-performance engines that could even be used in other industries (airlines, automobiles, etc.). ALFADAN also built a deep competitive moat with its patented design. If all goes well, ALFADAN will have a solid advantage over the competition.

ALFADAN is a pre-revenue company spending money on research and development for its proprietary outboard engine design. In 2019, the company posted a net loss of $25,346. That loss increased substantially to $872,836 last year, thanks to more intensive prototyping. 

It’s worth noting that ALFADAN did declare revenue during its fundraise last year. In fact, the company reported $25,000 in revenue for 2019 and almost $200,000 in revenue for 2018. It’s not clear why those figures differ from the financials presented this year, and the inconsistency is a cause for concern. 

Beyond financials, ALFADAN has made solid progress in developing its i4 engine. The company has completed prototyping and is moving into development testing and manufacturing. ALFADAN is under contract with Mahle Powertrain, a reputable engine manufacturer, to complete this next phase of development. Securing that partnership was an important milestone in smoothing ALFADAN’s path toward entering the market. 

All in all, ALFADAN has performed as expected for a pre-product, R&D-intensive company. It is burning a good deal of capital with a long development timeline while also boasting a strong manufacturing partnership.

ALFADAN is a very early-stage company, so it’s a pretty risky investment. With no finished product and no immediate go-to-market plan, prospective investors will have to wait a long time before getting a sense of their potential returns. Plus, there’s a good chance that ALFADAN will require a good deal more capital to complete product development and manufacturing. Raising additional money at even higher valuations could reduce current investors’ stakes significantly before ALFADAN has even proven product-market fit.

ALFADAN’s proposed value proposition for dramatically better-performing boat engines is a compelling one. However, there are a few reasons why prospective investors might pause. First, ALFADAN is simply a very early-stage company. It will be anywhere between two-to-four years before consumers can buy an ALFADAN motor, so investors are taking a big gamble that no major issues will crop up before then. 

There are also a few mysteries that raise concerns. ALFADAN reported inconsistent financials between its 2020 and current raise. It’s not clear whether the company has generated revenue or not (if it has, it’s not clear how). ALFADAN co-founder Albert Araujo doesn’t have a LinkedIn page, so his background is difficult to fully verify. In addition, it’s not obvious who actually invented the ALFADAN motor design (neither co-founder seems to have significant engineering experience). There has also been a bit of controversy surrounding ALFADAN’s fundraise. YouTuber “The Workshop” — whose account has 85,000 subscribers — posted a series of videos questioning the i4 engine design and alleging that the company is “a scam.” 

All in all, prospective investors might feel that there are too many questions and too few answers about ALFADAN. After all, the entire premise of the company’s product is unconfirmed until customers have a chance to try it out. Beyond that core risk, there are inconsistencies, missing information, and allegations that further cloud ALFADAN’s prospects.

If prospective investors are willing to gamble on a very young company with no evidence of product-market fit, there’s a chance that they could receive excellent returns. While ALFADAN’s i4 engine isn’t available for purchase yet, it promises to have a big impact on the outboard engine market. Claims like 50% more horsepower and 50% maintenance cost savings are compelling for boat owners, and ALFADAN has completed feasibility studies and prototyping to prove those assertions.

Plus, ALFADAN is under contract with Mahle Powertrain to continue developing and manufacturing the i4 engine. Mahle is a major name in the motor world, and this partnership is a strong signal of credibility for ALFADAN. The contractual relationship also helps to guarantee that ALFADAN will be able to produce its i4 engine on time. Though that launch is years away, the timeline isn’t purely speculative. 

If ALFADAN can successfully launch a dramatically better-performing outboard motor for boats, there are exciting additional applications that could further supercharge the company’s value. ALFADAN’s patented four-cylinder design could theoretically make a big impact on the aerospace and automotive industries, both of which are much larger markets than boating. Every significant mechanics company started with a big, bold idea, and there’s some reason to believe that ALFADAN is on the cusp of similarly huge success. 

ALFADAN is an outboard motor company that holds a patent on a redesigned four-cylinder engine to dramatically increase performance and reduce weight for boat motors. The product benefits that ALFADAN asserts are impressive, and the company has the potential to make a big impact if its engine reaches go-to-market successfully. ALFADAN’s contractual partnership with Mahle Powertrain gives evidence that the engine will continue to be developed and manufactured on time. 

On the other hand, it will take years to prove whether or not ALFADAN’s motor represents a significant enough innovation to generate massive value (and at this high valuation, generating massive value is necessary). Plus, inconsistencies and controversy surround ALFADAN. It’s not clear why financials are inconsistent between the company’s two fundraises, and a YouTuber with a large audience has created several videos to denounce ALFADAN’s engine design. Therefore, ALFADAN has been rated a Neutral Deal. 

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