Moonshot companies are a tough sell for investors. These kinds of startups typically need large amounts of funding to show results, but investors usually want to see early results before they take the risk of investing.
For LPPFusion, the risks and returns are higher than most moonshot investment opportunities. So it’s even more difficult for the company to raise the funds it needs to get initial results.
LPPFusion is trying to create fusion energy, a harmless radioactive reaction that can theoretically produce a virtually limitless amount of energy — and could completely decarbonize the grid. Scientists have been working on creating fusion energy for decades but are still at least 10 years away (or more) from solving the technological problems associated with it and reaching commercialization. But if they succeed, they could create enough energy to power the world’s grids and energy-intensive technologies like quantum computers.
KingsCrowd rated LPPFusion a Deal to Watch in 2020. Since 2018, the company has raised more than $2.4 million online — a great number for an equity crowdfunding company, but very low for such a risky moonshot. Let’s explore LPPFusion’s progress and the risks that investors should consider if they want to invest in the company.
Creating the Sun on Earth
First, let’s break down fission and fusion. Atoms are made of a center, called a nucleus, which is a combination of neutrons and protons. Traditional nuclear technology, called fission, generates energy by adding a neutron to a nucleus and splitting it into two nuclei. This creates unstable nuclei and generates both heat and radioactivity.
Fusion is the opposite of fission. It combines two or more nuclei together into one larger one. The only byproducts are helium and a fast and hot neutron that will heat water and produce steam. Fusion can be used to produce electricity. And since fusion is not meant to produce radioactivity, it is theoretically less dangerous than fission.
There are several theories on the right way to produce fusion reactions. The most common method is laser fusion technology, which can create a similar temperature and pressure as the one that exists in the stars. It is the only method that has produced significant results so far. And only the public Lawrence Livermore National Laboratory (LLNL) — which has an annual budget of more than $2.2 billion — has managed to produce energy with fusion technology. No private company has managed to generate positive results yet.
LPPFusion uses a different technology called dense plasma focus (DPF). DPF technology compresses plasma until it creates an intense ray of neutrons. LPPFusion is one of the only projects using this technology.
An Impossible Equation
This is where the vicious cycle of needing funding and needing results begins. Most government agencies — including the U.S. government — do not believe DPF is a viable pathway to create fusion. DPF’s effectiveness has historically been discounted after decades of research achieved no results. So LPPFusion has had difficulties raising funds in order to prove naysayers wrong.
The company is still proud of its recent results. A recent peer review confirmed that LPPFusion has the best energy output/input ratio of all private companies trying the DPF method. This peer review estimates that if it gets enough funding, LPPFusion could achieve positive results with a prototype between 2026 and 2030.
LPPFusion has an ambitious goal to achieve positive net energy — similar to LLNL — by 2024. According to LPPFusion founder and CEO Eric Lerner, if the company achieves this goal, it will need $100 million to create its prototype.
But right now, LPPFusion faces two major funding risks.
First, most projects trying to create fusion energy are using laser technology. Investors backing LPPFusion’s DPF technology are taking a pretty high risk by backing a technology that most would not fund. So they may be reluctant to back the company.
Second, a good fundraiser is a founder who can convince investors. And Lerner could do better at this. While he is very smart, he has a very divisive personality. He dropped his graduate studies because he did not like the academic approach. He wrote a book criticizing the methods behind the Big Bang theory. And now he’s building a startup based on a technology that most scientists have abandoned.
He might be right. No one will know for sure unless/until he reaches a breakthrough. But in the meantime, I fear that investors will not want to invest in him because of his divisive background and controversial reputation in the industry — and the fact that the U.S. government refuses to back his work. Having such a divisive founder leading one of the biggest moonshots available on equity crowdfunding platforms makes LPPFusion a very risky investment.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Léa Bouhelier-Gautreau
Léa is passionate about impact investing and sustainability. Prior to KingsCrowd, she worked for Stanford’s accelerator, StartX, helping to select the most promising entrepreneurs. She also led the first award-winning study on the Malawian startup ecosystem. In her free-time, she volunteers to help entrepreneurs in Cameroon, Brazil and Colombia. Léa holds a degree in Anthropology from France and is currently enrolled in the UC Davis MBA program.