Hi tkc,
Oh yes. I agree.
But I was arguing with the folks who say that securing a profit is the only and necessary strategy for growing an early stage business. That is only one approach.
There are few points I haven't made myself about Wave's governance - from the apparent passivity of the directors, to the non-appearance of the chairman in the unsafe harbour, to the riskless nature of executive pay, to the inaccuracies in the CCs, to the lack of formal guidance etc. [By the way, I am not so supportive of a Wavoid investor on the board. To put it bluntly, I expect that whoever is popular enough to be voted in would be worse than hopeless.]
But the issues you raise are problems in companies which apparently pursue a profit maximising strategy every bit as much as in a sales maximising one. And they don't mean that sales maximisation is the wrong policy simply because the profit is less (or in Wave's case, hiring turns a profit into a loss).
I suggested sales maximisation was the right policy for Wave before they got close to break even. Why? I think in the long run the stock market will be sensitive to the rate of sales growth and Wave's market share. Also Wave gets paid upfront, so they are actually receiving net inflows before they report sales in the income statement. This insulates the company from immediate liquidity issues. I have no wish to see Wave sitting on a cash pile - instead, I want them to invest in the company's future growth.
This means they should be hiring sales people rather than sitting on cash reserves. Necessarily, this means profits are turned into losses. I don't care. I hope those sales people will generate more cash in future. Then I hope Wave hires even more sales people, and still doesn't make a profit. All so long as they are cash flow positive.
Only once the company matures some am I in favour of thinking mainly in terms of profits. But that is a few years down the road.
As regards the need to recapitalize - it rather depends why they need to do so. If it is because they have over-hired and cannot deliver the revenues to support the staff, then that sucks. If it's for R&D related to a genuine opportunity, then it kinda depends on the price of the diluting stock.
Growth in sales of existing products should drive the stock price upwards. Any dilution would likely be minor in those circumstances. If Wave were to announce a major DoD deal and then needed funding to pursue the mobile opportunity, I daresay I'd feel accommodative.
Like you, I would be very disappointed to see dilution at this kind of price. But I suspect the stock price would be lower if the sales growth was less than it is. And if Wave was maximising profits, then it would be investing less in its sales people, with obvious consequences for growth.
I agree that Wave still needs to prove the economic value of its model. But for me, the rate of sales growth is the critical issue, even in that discussion.
But then, I am a long term investor. Whereas you wish to sell your shares. Each is a reasonable thing to wish for. But we have different priorities.
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