Big industrial problems attract entrepreneurs with big ideas and risk-taking investors. With good intentions, some end up as disastrous scams as promised products prove unattainable.
How does this happen? Such situations are rare, but some entrepreneurs fool themselves and investors into believing that obstacles can be overcome with just more dollars and patience.
The infamous Theranos case ended with the entrepreneur’s recent conviction for fraud, who falsely claimed to solve the problems of quick and inexpensive blood sample testing after raising hundreds of millions of dollars while falsely claiming success.
A recent case of fraud concerns the hot area of carbon-free energy. Nikola Corporation went public with the goal of making trucks powered by hydrogen fuel cells. This is an old concept with practical limitations.
On September 12, Nikola founder Trevor Milton was charged in US federal court with securities fraud because the company failed to deliver a product despite claiming otherwise. Before the facts broke, the company briefly reached a public valuation of $30 billion — which was close to Ford Motor Company.
Both of the above ventures initially provided plausible arguments for the achievement of their products. They raised money because many investors in high-risk tech companies are willing to believe that all technological risks can be overcome by a great team led by a brilliant entrepreneur.
Part of the reason for such high risk is that entrepreneurs looking for big ventures may be promoting technologies that show promise but have a long history of failing to put into practice. The entrepreneur promises a solution where others have failed.
There is no shortage of well-meaning individuals willing to support such ambitious entrepreneurs based on a belief in the ultimate success of supposedly revolutionary technologies. For example, Henry Kissinger was on the board of Theranos, clearly not in his area of expertise.
One of the current big, high-risk ideas attracting entrepreneurs is nuclear fusion to generate electricity. It is about the generation of “clean” electricity by nuclear fusion of hydrogen, trying to mimic the energy production in the sun and other stars.
Hydrogen gas is tightly confined under tremendous pressure and extremely high temperatures. When a critical state is reached, two hydrogen atoms fuse to form a helium atom, producing energy (heat) and a neutron.
When scaled up, such a process can theoretically produce an infinite amount of “clean” energy. But the practical problems are enormous. One of the unique aspects is the development of new reliable materials for the construction of the systems.
For more than 60 years, governments have invested billions of dollars to make this dream come true. As a result, it was shown that the fusion process can be achieved under laboratory conditions for very short times, but the energy generated does not significantly exceed the applied power required to sustain fusion.
So the technical goal has not yet been reached and none of the best informed technologists can offer a timeline. The development of such technologies requires enormous resources and a lot of specialized development in completely new areas.
Breakthroughs in electronics
We are spoiled by the pace of progress in practical electronics and software. Over the past 60 years, computing power has increased dramatically by following the progression curve of Moore’s Law – a doubling of chip component density every two years. The power of a room-sized mainframe computer from 60 years ago is now contained in a smartphone.
All too often, widespread expectations translate from this amazing advance to chemical or mechanical technologies. During that same 60 years, advances in fusion technology have been in the areas of theory and laboratory results, not in practical power generation. Because the technological problems in fusion and in microelectronics are very different.
This has not prevented entrepreneurs from making promising breakthroughs. For example, it is claimed that applications of artificial intelligence and machine learning will lead to the design of practical fusion systems.
There is no reliable timeline for success when developing revolutionary technologies, and there is a long history of failure. Breakthroughs happen, but never on schedule, and investors need to be prepared for such risks.
Henry Kressel is a technologist and inventor and a long-term private equity investor.