Like the title of this article says, I’m a huge fan of Tom DeLonge (former blink-182 guitarist/vocals) and have been supporting his work with Angels & Airwaves for many years. This includes supporting his music as well as his movie projects, but the other day, Tom announced his latest venture: To The Stars Academy of Arts and Science and this one, well, this one is different than previous ones. This time around Tom is using an equity crowd funding model to raise money for his new company. While there’s nothing inherently wrong with this model of fundraising, I’m truly concerned about the viability of said company after reading the offering letter.
In the most TLDR version of the letter, it reads: THIS IS A BAD IDEA, DO NOT INVEST. Obviously I’m paraphrasing here, slightly. Yet despite the horrifying offer letter, as of me writing this, 620 people have invested at least $200 in the company’s offering bringing the total number of dollars raised to nearly $300,000 so far. Yikes.
So why shouldn’t you invest in Tom’s new company? There are several reasons so bear with me as I’m going to attempt to break this down for you.
Not enough funding & massive dilution
In this offering, the maximum amount of money that Tom & co. can raise is $50 million which they acknowledge to likely not be enough (if they can even raise it in the first place). I’ll stop right there for now, it will certainly not be enough based on the projects outlined and described in the offering letter. Several of these projects are aerospace initiatives or advanced technologies that require significant R&D. I’ll put it in perspective for you: NASA requested $19 billion from the US government for its 2017 budget and Tom expects him and his team to be able to build rockets and interplanetary space travel vehicles for $50 million? I don’t think so. Furthermore, look at Space X, in its first ten years of operation the company operated extremely lean on $1 billion. Of that $1 billion, Elon Musk himself put $100 million into the company when he first launched it.
“So what?” you’re thinking, Tom’s company will just raise more money. Sure, if they find some success and build a viable product they can go out and raise some more money. Hypothetically, let’s say they do find some success with a product or two and go out to raise more money. How does that affect you? It affects you a great deal. Remember that $200 you invested at $5 per share way back when? Yeah, those 40 shares will now be diluted to essentially nothing, turning your initial investment to dust. Your already paltry ownership stake will now be (even more) microscopic.
Even if you disagree with me and decide to invest your $200 for 40 shares of Common Stock you get no power or say in the company and frankly, considering how early on you’re investing in this new company with pretty much no product, very little revenue, and no profits, I’d expect to have Common Stock with rights attached that give some power to shareholders.
These things alone should convince you investing in this company is a bad idea, but there’s even more reasons not to.
How’s your invested money being spent?
According to the offering letter, the minimum qualifying funding is $1 million, so in order for the fundraising to complete, Tom needs to raise at least $1 million through this crowd equity campaign.
As we just discussed, $50 million isn’t even enough to work on the projects they’ve highlighted in the letter, how would $1 million help? It wouldn’t help with anything other than paying back Tom for a “loan” he gave To The Stars in 2015 and 2016. As you can see in the letter, it outlines how the money would be spent based on possible amounts that could be raised, well, I want to call your attention to one line in particular:
Approximately $600,000 to repay a loan from Our Two Dogs, Inc.
Who do you think owns Our Two Dogs, Inc.? Tom DeLonge. If you don’t believe me, read the letter, it says it in there. Now that’s fine, I guess, he’s entitled to be paid back if they successfully raise funds, but here’s another line from the use of proceeds section:
If the offering size were to be less than $5 million and above the $1 million minimum, TTS AAS would adjust its use of proceeds by reducing planned growth of employee headcount, reducing operational costs, and slowing down projects or not making investment in projects. The company is also required under the loan to Our Two Dogs, Inc. to repay 10% of the net proceeds from funds raised in this offering, up to $400,000 in this scenario.
So let me get this right, the To The Stars offering brings in less than $5 million from crowd funders but Tom essentially makes back his loan and the company continues to operate at a bare bones/skeleton crew level. That just isn’t right. Your investment in To The Stars would essentially be to continue to fund payroll for Tom and his few full-time employees for another year. It’s hardly a smart investment on any level.
Additionally, there’s another line you should look at:
We are required to pay a minimum royalty guarantee of $100,000 each calendar year.
That royalty payment is a minimum $100,000 annual payment to Tom, regardless of whether or not revenues exceed $100,000. Seriously?
These crazy projects & lack of talent
I’ll start this off saying, I’m sure Tom’s a smart guy, but Elon Musk is smarter and if he isn’t working on these things described by Tom what makes you think they are a) possible and b) worthy of spending time on? Or maybe Elon is working on some of them in which case I give Elon the upper hand, not just because he’s likely smarter but because he already has an established team of smart people around him. So if you want to invest money in space, give it to Elon Musk.
Building on the crazy projects, the company only has three full-time employees currently, Tom and Kari DeLonge, and Lisa Clifford (who’s the secretary). In the letter it notes that the company has a relationship with James Semivan, Harold Puthoff, and Louis Tommasino but they are all contractors — not full-time employees, so how much time will they be actually spending on the company, especially if they’re not getting paid? I’ll tell you: zero amount of time.
And honestly, do you think people are going to leave Space X or Tesla or Apple or Google or any number of companies to go work for Tom DeLonge building rockets/space ships? Unlikely.
Look, I get it. You want to support Tom and his work–I do too, but don’t go blindly giving him $200 for shares in a company that you will never see any meaningful return from. And frankly, I’m a bit disappointed by this move from Tom, I had a lot of respect for him musically but also from a business perspective but this is just not cool–he’s using his fanbase to reimburse himself for the past two years, or at least that’s what it looks like to me. I’d love to be wrong.