Oscilla Power is Making Waves as a Deal to Watch

Key Stats:

Summary

The Oscilla Power 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.

The Oscilla Power founders are part of traditionally underrepresented groups in startup investing. 

Problem

The days of fossil fuel dominance are numbered. Technological progress combined with a social push for cleaner alternatives will one day lead to fossil fuels becoming all but irrelevant. One issue with this, though, is that there is unlikely to be a single solution. The energy needs of the world will not be met by one or two energy sources. Instead, they will likely be met by some combination of solar, wind, geothermal, and other energies. One often under-appreciated source of energy is wave-generated. This area has been neglected in recent years as significant strides have been made in popularizing, commercializing, and driving down the cost of these alternatives.

Solution

One company that believes it has the technology capable of pushing wave power into the limelight is Oscilla Power. The company’s founding team has been working on this technology since the firm’s launch in 2009. During this time, they have developed a floating mechanism that operates with three tendon-like features attached to a submerged ring to capture all five modes of motion that the ocean generates. When the waves rock the mechanism, the architecture within it shifts. This shift allows the mechanism to convert the motion into electrical energy that can then be captured and monetized by the firm.

Since launching, Oscilla has raised over $15 million in non-dilutive funding from various agencies. These include the NSF, NOAA, the US Department of Energy, and Wave Energy Scotland. The state of Washington has also been a big contributor to the company’s cause (Oscilla is based out of Seattle). Management has already built and validated small-scale models of its technology, and it has been granted 16 patents in the process. The next step on the road to commercialization is to build and validate a larger-scale version of the technology.

To this end, management is trying to raise its current round of funding. This will help the company as it works on completing a 100kW unit in Hawaii. The design work on that unit has been completed already. Currently, Oscilla is working on its float and drivetrain construction. If all goes according to plan, this device — dubbed the Triton-C — will be deployed at the Kaneohe Marine Corps base in the first quarter next year.

Ultimately, management’s aim is to begin monetizing the Triton-C in 2022, but it has bigger plans than just that. Oscilla also aims to launch a test version of its 1MW unit in India before too long. The objective here is to connect to India’s power grid in 2023 and generate revenue as a result. Actual monetization through selling the 1MW Triton system should occur in 2024. It’s worth noting that Oscilla licensing out its technology would make a great deal of sense as a method of revenue generation. But the company does not seem to be pursuing that approach. Management only discussed generating sales through selling the system to energy project developers. These parties, in turn, would develop them for utility-scale end-use.

In addition to collecting energy from waves, the system has a number of other benefits as well. Management touts, for instance, the low-cost tow and drop installation process for deploying it. Transportation and startup costs for utility-scale energy systems vary widely depending on technology. But costs here can be kept in check. Oscilla intends to charge around $2.5 million per 1MW of capacity for its system. The customer then tows the system out where they want it and lets it go. In the event of severe weather, the technology is designed to automatically submerge itself just below the surface of the waves. This removes human judgement/error from the equation. It also lowers the risk that an adverse weather event will cause material damage to the system.

Despite the significant amount of capital the company has received from grants over the years, Oscilla still has no revenue. This is true for both 2018 and 2019. In 2018, the firm’s net loss was $444,635, while in 2019 this narrowed considerably to a loss of just $86,485. 

In reviewing Oscilla’s financial statements, there are some items that investors should be aware of. For starters, the business ended 2019 with convertible debt of $539,980. They also have another $131,914 in accrued interest that will likely convert into equity. Accounts payable come out to $514,106, most of which is owed for legal services rendered. The biggest questionable spot, though, is the account labeled accrued salary payable for $316,323. Instead of paying all of the salaries earned by management, they allowed it to be accrued and put on the balance sheet as a liability. Though not strictly illegal, investors should exercise caution. This is because there are some risks here, and it’s easy for a startup to run afoul of employment laws.

An Interesting Market

The alternative energy space is large and growing rapidly. Take, for instance, solar and wind. The solar market is estimated to be worth about $76.23 billion today. The global wind market is even larger at $100.60 billion. While the wind market is forecasted to grow at only around 2.2% per annum through 2030, solar’s growth is projected to average 20.5% each year. Both of these spaces dwarf the global wave energy market by comparison.

Some estimates we came across suggest that the wave energy space may only be worth in the hundreds of millions of dollars right now. Others suggest that the market is a bit larger. One source pegs the industry’s size at about $4.95 billion today. This is up from $3.24 billion in 2018. With an annualized growth rate forecasted for it of 23.5%, the space should grow to $17.54 billion by 2027. A different source believes that wave energy is even larger at about $7.09 billion today. It pegs a smaller growth rate of just 9.7% per annum on the market. If this holds true, then by 2025 it should grow to $9.36 billion.

In evaluating the market, investors should not necessarily view wave’s smaller size as a sign of inadequacy. This is because it’s not really competing with solar, wind, and other alternative options so much as it is serving as a complement to them. One source we found discussed that the amount of energy that can be captured from waves is very seasonal in nature. In winter months, the potential is far greater than in the summer months. This happens to be the opposite compared to solar and, to a lesser extent, wind. During times of the year when solar and wind are weaker, wave can step in and take care of some of that demand. This also happens to be the time of year when electricity costs are higher. So, in one sense, wave power doesn’t necessarily have to match the cost of other alternative options.

Terms of the Deal

In order to keep the business moving along, Oscilla Power is seeking out a capital investment. The goal is to raise up to $1.07 million, but the firm can close its round with as little as $50,000. In exchange for an $100 minimum investment, investors will receive a convertible note in the firm. This note will convert at the valuation of the firm upon a triggering event. This will be subject to a $13 million valuation cap and with a 20% discount applied to the implied value of the firm. As of this writing, Oscilla has received commitments totaling $80,152.

An Eye on Management

There are three key people heading Oscilla today. The first of these is Balky Nair, one of its two co-founders. Nair serves as Oscilla’s President and CTO. He holds a PhD in Materials Science and served in the past as President of HiFunda. Before that, he worked as the President and CEO of EmiSense. The other co-founder of the firm, as well as its Board Chair, is Rahul Shendure. He has previously served as an Advisor for Beyond Meat. Other positions Shendure has held include being co-founder and CEO of Bellwether Bio and working as the VP of Product Marketing for Amyris. The last key person working on Oscilla is Tim Mundon. Mundon holds a PhD in Wave Engineering. He also still works as an Affiliate Assistant Professor in the Mechanical Engineering Department of the University of Washington. Previously, he was employed as a Senior Engineer at Kleinschmidt Associates.

Rating

Oscilla Power looks to be a game-changer in the wave energy space as its technology has already been validated several times on a smaller scale. Significant financing from varying agencies is a huge credibility boost, as is the fact that the business already has 16 patents. The ability to license out its technology should not be understated. Though the industry the company operates in is still fairly small, they should benefit from the market’s rapid projected growth.

This is not to say all is well and good for Oscilla. The firm’s past financing makes clear that the future will likely require many additional rounds of funding. They could receive this from additional grants. But if it cannot get the funding from other non-dilutive sources, this will lead to shareholder dilution over time. Another downside is the firm’s liabilities. Much of this is convertible into equity, but not all. The accrued salary payable is also questionable because of the aforementioned risks. 

Oscilla Power is likely to be a very long-term investment before any return could be realized. However, we believe the potential for the company is significant. Balancing its current technological developments with its risks, Oscilla Power is a Deal to Watch.