The WANdisco fiasco

As a very pretentious teenager with delusions of grandeur, I felt the time had come to tackle some of the great works of modern literature. Sadly this plan was not borne out of any noble quest for self-improvement, but rather that a girl I liked in English class had told me she liked James Joyce. Diving straight in the deep end, I went to the library to borrow the Irish author’s most experimental work Finnegan’s Wake. Reader, it was a disaster. None of it made sense to me. The unrecognisable words and baffling sentence structures defeated me after a couple of pages.

A decade or so later I sat in an office with a similar feeling of intellectual inadequacy. This time it wasn’t early 20th century literature causing confusion, but rather a company looking to raise funds for an AIM IPO in 2012. What does ‘patented, non-stop data replication technology, serving crucial high availability requirements, including Hadoop Big Data’ actually mean? After spending more than a few hours alternating between WANdisco’s prospectus and Google search, I felt it was time to admit defeat once again. In my brief analysis to the rest of the investment team, I said that despite the company’s apparently blue-chip client base and likelihood the raise would be well-supported I didn’t think we should participate. I just didn’t understand the business.

For a couple of years, this was a lousy decision. After WANdisco listed at 180p in June 2012, the stock rallied to a peak of over £14 little more than a year later. A series of disappointments saw it fall to below £1 in late 2015, but it has recovered remarkably since then and was very close to previous peaks when the shares were suspended on Thursday morning. In a brief statement, the company stated that it had identified potentially fraudulent irregularities with regards to orders and related revenues. Previous expectations for FY22 revenues of $24m could be as low as $9m and there are significant going concern issues.

How many investors in WANdisco truly understood what sort of business they were investing in? When they clicked on the ‘Overview’ section of WANdisco’s corporate website and read “WANdisco data activation solutions enable enterprises to activate petabyte and exabyte-scale data trapped in their internal systems, making it immediately available in the cloud to leverage the latest advancements in machine learning and AI-based cloud analytics” did they really know what that meant? Was the constant stream of ‘contract wins’ with (frequently unnamed) customers and a promotional CEO sufficient?

Investors shouldn’t be required to be experts in every field they invest in. You don’t need to be able to fly a plane to buy Ryanair or to have once been a horse to become a jockey. Additionally, having a decent understanding of a business doesn’t prevent other failures of analysis, as I’ve also (un)successfully demonstrated on numerous occasions in recent years. Ever since the Joyce-debacle, though, I’ve had the ability to unembarrassedly hold my hands up and admit, “I’m just too thick to get this”. In my experience, it’s a skill that usually serves investors well.

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