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What Does Bill Gates’ Investment in KiOR Tell You?

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Whenever you hear the name "Bill Gates" probably one of the first things to come to your mind is "big bucks" or "one of the richest guys in the world." Likewise, if you hear "Bill Gates" and "investment" uttered in the same sentence, you probably think it's an investment of magnitude. Then, the eyebrow-raising announcement came. Bill Gates is investing $7.5 million in KiOR (NASDAQOTH: KIORQ  ) now and maybe $7.5 million later. What? That's it?

Financing details
On Oct. 21, KiOR announced up to $100 million in financing. This is $300 million shy of the amount it anticipates needing for its cellulosic biomass fuel plants. Of the $100 million, Bill Gates committed to buying $7.5 million worth of shares up front at a 25% discount to market. He committed another $7.5 million also at a 25% discount and only if the rest of the $400 million financing is obtained.

KiOR stated the $100 million in total equity financing ($15 million of it from Gates) "will be the last equity portion." This implies the next $300 million more won't be in the form of equity and therefore won't be dilutive. KiOR did leave itself an out by including, "unless market conditions would make corporate-level financing more accretive and less dilutive to our shareholders." That's a fancy way of saying "higher stock prices."

You would think $300 million in non-dilutive financing would indeed lead to higher stock prices. That begs two questions. First, if Bill Gates is confident about the rest of the financing coming through, wouldn't he want to invest his other $7.5 million along with its 25% discount sooner rather than later? He would end up with more shares now at cheaper prices if he felt that. It doesn't sound like he has much confidence. Second, if Bill Gates were really confident in what KiOR is doing, he would likely invest more than $15 million in the first place.

Other Gates investments
Take Ecolab  (NYSE: ECL  ) as an example. Bill Gates and his Cascade investment firm invested over $200 million in Ecolab a few years back, well over 10 times more cash. Gates has since bought more shares of Ecolab, last reported at over 32 million. Ecolab pays a small dividend with less than a 1% yield. To put in perspective of just how small his KiOR investment is, the annual Ecolab dividend pays nearly double the $15 million he has committed to invest in KiOR. 

One the same day the KiOR investment was announced, it was also disclosed that Gates took a 6% stake for $155 million in Spanish company Fomento de Construcciones & Contratas. Now that's a real stake! It's at least 1,000% more than his announced intended investment in KiOR.

Then there's Republic Services (NYSE: RSG  ) . Gates plunked down $310.6 million into this waste management company last year. That's over 20 times more than what he'll put in KiOR. Since he's up 25%-30% on his Republic Services investments, it's been a wise move so far. He's made around six times over in Republic Services profits in less than a year than he's willing to pony up for KiOR.

Foolish bottom line
Sometimes an investment by a big name like Bill Gates says more by its lack of size than the investment itself. While you might think it's a note of confidence, it is actually the opposite. KiOR may prove to do well over time, and Gates may actually end up making money with this one, but for now it's a red flag. Investors should avoid KiOR. When a rich and powerful man like Bill Gates isn't willing to risk much -- neither should we.

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Related Tickers

12/31/1969 7:00 PM
KIORQ $0.00 Down +0.00 +0.00%
KiOR INC CAPS Rating: No stars
ECL $121.72 Up +0.99 +0.82%
Ecolab CAPS Rating: *****
RSG $50.45 Up +0.38 +0.76%
Republic Services CAPS Rating: *****