116 - Learning from mistakes you narrowly avoid $MCLDF

Mental Models discussed in this podcast:

• Confirmation Bias
• Skin in the Game

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Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode116

mCloud Technologies - $MCLDF

• SaaS company
  • Trading at just 1x expected revenue
• Energy efficiency (Oil and Gas Plant efficiency)
• Green Energy (Wind Turbines, HVAC efficiency)
• Uses AI

Problems:

• Cash flow negative (Presumably in the name of growth)
• Regular ongoing stock issuance and dilution
  • Both shares and warrants
  • "An assumption that this is the last time."
• Very promotional management (with skin-in-the-game?!?)
• "Uplisting to the NASDAQ" talk
  • A lot of examples of SaaS names going from 1-2x revenue while on the Canadian TSX market to 10x+ revenue on the NASDAQ in the US
  • Still hasn't occurred many years later
• Mergers and acquisitions using stock (Not cash, because they don't have any)
• Growth targets include non-organic growth (REALLY BAD)
  • Dilution is required, but it makes it impossible to model per share returns
• Exit: Liquidity event needed for the payoff (Either sell to another company or an uplisting)

Lessons Learned:

• Don't buy promotional companies
• Don't buy companies that dilute
• Don't buy companies that can't self-fund growth
• Insider ownership does not equal skin-in-the-game
• Be wary of 'uplisting' as a catalyst

Summary:

Investors need to constantly be wary of confirmation bias and stay alert for possible red flags. mCloud Technologies stock $MCLDF taught me this lesson. Don't buy promotional companies that dilute shareholders and can't self-fund growth.