Faraday Grid: How the energy startup Adam Neumann invested $30M in collapsed – Business Insider
Energy-tech startup Faraday Grid collapsed in August, after raising $30 million from WeWork cofounder Adam Neumann.
Business Insider has spoken to sources and obtained documents that reveal the dramatic unraveling of the UK-based startup, which at one point valued itself at $3.5 billion and later at $6.5 billion.
CEO Andrew Scobie borrowed $100,000 from the company to renovate his house and spend thousands on a custom suit.
In an outlandish scheme, the CEO opened a new backup office in Switzerland due to fears that left-wing politician Jeremy Corbyn might soon win a UK election.
Scobie also spent $5,000 of company money hiring a celebrity chef to prepare a lavish dinner for Neumann’s sister.
Another time he bought a pen for $1,000.
Scobie was also accused of bullying and aggressive behaviour before being fired.
Scobie acknowledged that he borrowed money from the company and that he put through some personal spending on company cards. He said the loan had been approved by the board and that he repaid the personal expenses. He denied allegations of bullying and said Faraday Grid had built a “positive culture.”
It was a cold February night in Edinburgh, but Andrew Scobie was buoyant.
This particular evening in early 2019, the 57-year-old Australian entrepreneur was planning not a dinner party but a “salon.” It was a term straight from the 19th-century philosophy books adorning his office bookshelves.
Adi Neumann, the one-time model and former Miss Teen Israel was coming to visit. She was in town because her brother, the WeWork CEO and cofounder, Adam Neumann, had just invested $30 million in Scobie’s company – at an eye-watering £2.75 billion ($3.5 billion) valuation. Scobie took it as a mark of favour for him and his team.
“He repeated that she was a supermodel about 30 times,” one member of staff recalled.
To welcome her, Scobie had lavished more than $5,000 on a private meal at his Edinburgh home for ten employees and executives from his energy-tech startup, Faraday Grid. Celebrity chef Luke Thomas, sometimes described as Britain’s youngest head chef, was catering.
It was a last supper before everything would unravel.
Within four months, Andrew Scobie would be fired from Faraday Grid for alleged gross misconduct, as would his romantic partner Jacqui Porch, the company’s chief marketing officer.
Faraday Grid itself would then collapse into administration — the UK’s approximate equivalent of bankruptcy — in August.
Adam Neumann’s $30 million cash injection and an additional $110,000 personal loan to Scobie would, with hindsight, look like a bad bet. Neumann himself would soon be wrestling with bigger problems, facing a string of lurid stories about his behaviour and his firm’s governance and business model. He would eventually step down as CEO of WeWork, and his main backer SoftBank would take control of the firm he built.
Faraday Grid’s rapid expansion and sudden collapse echoes that of WeWork, which is now scrambling to stay afloat after once boasting a position as one of the world’s most valuable private companies. It also reflects the risks when the wider business world draws direct inspiration from WeWork and its backer SoftBank, justifying aggressive, expensive expansion and eye-watering valuations with a noble mission to change the world.
Faraday Grid was an energy tech startup which promised to change the world
Named after 19th-century physicist Michael Faraday, Faraday Grid had been working on a system that could help national power grids handle greater amounts of renewable energy. The tech was billed as potentially world-changing — but the firm ran out of money and imploded amid allegations of financial mismanagement and personal misconduct before even getting customer trials off the ground.
Internal documents reviewed by Business Insider that were drawn up as part of an investigation by Faraday Grid’s board and in-house counsel offer an unfiltered window into the divisive issues that tore the billion-dollar startup apart.
They detail how Andrew Scobie and Jacqui Porch borrowed money from the company to do up their house, used company cards for personal expenses, and spent lavishly on business travel and hotels — as well as the luxurious February dinner, the spending on which was cited as having been a factor in Scobie’s firing.
There are also allegations within the document concerning Scobie’s personal conduct, with the document alleging that the executive would swear at and humiliate employees — allegations repeated by former employees who spoke to Business Insider.
Andrew Scobie has denied wrongdoing, and disputed allegations within the document and from former staff that he spent money without board approval. He says that he hired lawyers and began proceedings for a claim of unfair dismissal, but the firm collapsed before he could bring a case. He did acknowledge that he borrowed money from Faraday Grid, that he was prone to swearing, and that he had made some personal purchases via the firm’s credit cards — but also says he repaid that money.
He told Business Insider: “For the record, there were no formal complaints about my behaviour at any time. And we openly set about building a proactive culture as an open, candid and rigorous company at all times, based on de-centralized decision making.
“But we were also in a fast-moving, pressured environment given the changes we aim to make to the world’s energy systems, and everyone’s perception of appropriate behaviour is slightly different.”
He acknowledged the February dinner, stating: “Ms Neumann spent two days in our Edinburgh office as part of the due diligence process Adam Neumann’s office undertook as part of investing in the company. We understood she had dietary constraints so we asked a chef known to the company (for his healthy cooking and menus), to prepare a specific meal for her and Faraday Grid management one evening.”
Jacqui Porch responded to allegations of personal expenditure on company cards, saying: “Business development, supply chain building, fund raising, and marketing activity in multiple global markets required much of the executive[s] to travel internationally on a regular basis. Hotels were selected based on proximity to business activity and/or access to professional services.”
Porch said she also began proceedings on a claim of unfair dismissal, but the firm collapsed before this could go further.
Representatives for Adam Neumann, and separately for Faraday Grid funder Atika Capital declined to comment.
Rare teas and misquoted 18th century philosophers
Andrew Scobie paired a messianic vision with an outspoken passion for classical philosophy.
“My plan to save the planet keeps bumping into the seen and the unseen,” the CEO wrote in an official company blog post in 2016. It was an expression of his world-changing aspirations. In the same post, he segued into a discussion of ancient Stoic philosophers, a recurrent personal and professional interest of his.
Faraday Grid’s entire Edinburgh headquarters stood as a temple to the Enlightenment philosophers and scientists that Scobie deeply admired.
Former employees described seeing old editions of works by physicists and political scientists such as James Clerk Maxwell, Adam Smith, and Michael Faraday on their CEO’s shelves. “They were the kinds of books you would only touch with gloves,” one ex-staffer recalled. Another added: “These were economic and engineering texts that Andrew Scobie thought were fundamental to shaping the company’s vision and tech, paying testament to those philosophers.”
Scobie had hoped to follow in these great men’s footsteps with a PhD in economics from Melbourne’s RMIT university. He never finished the qualification, according to his supervising professor Jason Potts, putting the qualification on hold in 2014 to pursue Faraday Grid.
Still, he pushed a philosophy of “rationalism” among his 200-strong workforce, giving lectures and instructing them on the importance of making rational decisions. To emphasise the point, decals of quotes from the various philosophers and scientists were dotted around the office walls, and rooms were named after famed thinkers.
Emblazoned across Scobie’s own office was a quote attributed to legendary economist Adam Smith: “All money is a matter of belief.” However, the quote appears to be apocryphal.
Business Insider consulted Professor Knud Haakonssen, an academic at the University of St Andrews and an expert on Adam Smith, who was unable to find the quote in any of the economist’s works.
Tall, well-built, and florid, Scobie liked to project a worldly air, former staff recalled. He enjoyed talking about the provenance of the rare teas he kept in his office from China and Japan, one former employee said. He could switch gears easily into talking about fine vintages or, another person said, anything about world history.
He was also prone to explosions in temper and swearing — something that would play a part in his undoing at Faraday Grid.
Now in his late fifties, Scobie had been around the block. In 2001, He was declared bankrupt in his native Australia, local records show. He picked himself back up in later years, and was appointed to prestigious industry positions in Australia’s island state Tasmania, but then faced accusations of conflicts of interest and questions about funding over the roles he held in 2008. A government report later cleared him of wrongdoing.
By the mid-2010s, Scobie had moved to Edinburgh and was devoted to Faraday Grid’s lofty mission. Throughout 2016 and 2017, his business was working on developing a prototype of its “flow control device,” called the Faraday Exchanger.
The prototype was what’s known as a three-phase transformer, and the goal was to develop a system that could replace traditional electricity transformers in national power grids. As CTO Matthew Williams wrote in February 2019: “At its core, the electricity grid is no longer fit for purpose — it was never designed for this new world of distributed renewable energy.” (To the untrained eye, the device looked like a large metal box.)
Around the world, national power grids are in the process of attempting to transition away from reliance on fossil fuels, and Faraday Grid was well-placed to take advantage of this unprecedented interest in renewable energy infrastructure. Accordingly, the initial goal was to get to grid-level testing with some early partners. But the R&D process is expensive, and in 2017 the company lost £1.8 million ($2.3 million), accounts filed with the UK’s Companies House show.
That’s not unusual for a capital-intensive and IP-heavy business — but it meant the firm keenly needed to seek outside funding.
‘Andrew thought he was on the pathway to being a billionaire’
A failed funding round in mid-2018 helped Faraday Grid hit the jackpot.
Amp, a small Canadian clean energy firm which previously invested in Faraday Grid and sat on its board, had committed to a further funding round before having to pull out, two sources said. To fill the gap, Amp’s executives introduced Faraday to other potential backers — including Adam Neumann.
Thus far, it had been a tough year for fundraising. Andrew Scobie was shopping the firm around to prospective investors, touting his firm’s smart grid system, but without success, sources said.
One investor source considered investing in Faraday Grid for a client, and saw the pitch. They expressed skepticism. “The conclusion [we] came up with was that the technology didn’t stack up,” they said. “He had a tech that sounded revolutionary, but the evidence they provided was based on a lab-based trial that couldn’t be replicated. Every time we asked for details on how it worked in practice, he sent a video of the trial, but I have no idea whether that was real.” The person advised their client not to invest.
In mid-2018, Andrew Scobie and Jacqui Porch duly boarded a plane to New York, along with Paul Ezekiel, the Faraday Grid board member and Amp executive who sources said had made the intro to Neumann.
The eccentric Israeli-American real estate entrepreneur had none of the same reservations as other prospective investors. It was, one source with knowledge of the encounter said, a “meeting of the minds.” (Faraday Grid seems to have appealed to Neumann’s interest in environmental issues, which has seen him ban meat from WeWork company events in 2018 and banish disposable cups from its locations.)
Faraday Grid’s executives returned to Scotland triumphant, with $30 million in hand and a sky-high £2.75 billion ($3.5 billion) valuation for the business.
“Andrew thought he was on the pathway to being a billionaire,” the source said.
Faraday Grid announced the investment in January 2019, and Scobie gave employees the impression the firm could secure more capital whenever it needed.
For the next few months, Neumann’s investment would be managed by a full-time WeWork employee in New York named Daragh Murphy, documents and sources indicate. It isn’t clear why a WeWork employee was chosen to look after a personal investment. Neumann had separately set up a family office called 166 2nd Financial Services to manage his personal wealth, and it had been this entity that invested in Faraday Grid, according to 2018 filings.
WeWork confirmed Murphy’s involvement, but declined to give further details. Murphy did not respond to Business Insider’s request for comment. A representative for Adam Neumann declined to comment.
‘It was kind of a joke that he bought himself a £70,000 stereo’
With $30 million in the bank offering much-needed financial breathing room, Andrew Scobie turned his mind to another worry: Jeremy Corbyn.
Amid political uncertainty in the UK, there was the risk that the left-wing politician’s Labour Party could seize power in an election — prompting the Australian executive to launch a new office in Switzerland in a novel scheme to shield Faraday Grid from potential socialist encroachment.
“It was driven by a fear that if Corbyn gets in, he nationalizes the electricity grid and then Faraday Grid is at risk from the government stealing its intellectual property,” one source said.
The launch of this Swiss centre was part of a broader spending spree by the company in the first six months of 2019.
It hired six C-suite executives, including a new chief financial officer and a new chief operating officer. It acquired three businesses in the Czech Republic from Chinese manufacturing firm Foxconn, forming a new local subsidiary. (The acquisitions cost around $3.6 million, internal documents stated.) It opened new offices and labs in the United States, in addition to Switzerland. The firm’s headcount grew to 200 people.
Scobie told Business Insider that Faraday Grid had developed the Swiss backup plan as a response to the uncertainty around Brexit. He said: “The board gave appropriate consideration to [Faraday Grid’s] location due to the ongoing political instability in the United Kingdom. For this reason the decision was made by the board to develop a contingency to move the company’s HQ to mainland Europe.”
By this point, the firm’s monthly burn rate was between $3 million to $4.4 million, two former employees said. But despite a rapidly depleting balance sheet, Scobie was bullish and pursuing additional funding.
“Andrew would keep saying, for a long time, that he’d got some really important, really rich person who would invest,” one employee recalled. But it would fail to materialise, and “everyone would forget about it.”
In the months after Neumann’s funding, Scobie told employees that Goldman Sachs had valued Faraday Grid at $6.5 billion. Former employees aren’t sure the valuation ever happened, though Andrew Scobie said in a statement that a “tier one bank” had come up with the valuation. Goldman Sachs did not respond to a request for comment.
As the business expanded, Scobie became more extravagant with his own spending. Internal documents detail that he and Jacqui Porch borrowed at least $100,000 from the company, using the cash to renovate their house in Edinburgh, ostensibly to hold board meetings and corporate events. It was here that the $5,000 dinner for Adi Neumann was held in February 2019.
Andrew Scobie told Business Insider that this loan had been approved by the board. “Despite this fitout being for the explicitly benefit of the company, I insisted it be treated as a loan to avoid any appearance of conflict of interest,” he said. “This loan was repaid in full.”
Other expenses listed include £64,000 ($81,000) spent on a hi-fi and speakers and a rug costing £2,625 ($3,300).
Scobie said all this expenditure was part of the original loan. “This expenditure was part of the approved loan mentioned above, and was used to equip the house to be used as a space for private meetings, Board meetings and overflow work from the office. All monies were repaid,” he said, adding that the firm had had appropriate governance from the start.
The pair were open about their spending, and also spent lavishly using the company credit cards, according to internal documents.
“Andrew and Jacqui went everywhere together, they stayed in the finest hotels,” one former staffer recalled, and added that one board member would observe that “watching Andrew and Jacqui’s Instagram [accounts] was like watching a permanent holiday channel.”
Another said: “Andrew loves living a lavish lifestyle, that’s his thing. It was kind of a joke in the company that he bought himself a £70,000 stereo for his office.”
Scobie’s Instagram account (now private) would show beautifully arranged meals at Michelin-starred restaurants in Geneva and ski trips. “None of this was done discreetly,” a source said.
Documents show that on the company credit cards, Scobie racked up thousands of pounds on a custom suit, a new shirt, and a $1,000 Mont Blanc pen. His partner Jacqui Porch took her school-age daughter on a business trip, and charged the fare back to the company. Documents also listed costly philosophy books, worth some £2,500 ($3,100) altogether, plus a miscellany of smaller expenses costing thousands of pounds.
Scobie said some of the purchases were made in error on company cards. “I purchased a number of personal items which were misallocated to company rather than personal accounts, and were repaid to the company,” he said in a statement.
He described the collection of books as a corporate library available to all staff to create a “culture of mutual learning discovery and discussion.” He said the books were not antique, as some sources described, but second-hand.
Porch said: “Any personal expenses over time were subject to a reconciliation process and repaid.” She said that she had taken her daughter on a business trip as a special case, and that this had been approved by the board.
According to documents filed by Faraday Grid’s administrators in October, Scobie and Porch did indeed pay back their loans — but only after the company had already collapsed.
Documents suggest that up until this point, 166 2nd’s involvement with Faraday Grid was still being overseen by Daragh Murphy, the WeWork employee. But Stern was a blue-chip investor, with stints at venture capital firm General Catalyst and Soros Fund Management. He immediately began scrutinizing his client’s investment, and took a board seat at Faraday Grid.
He quizzed Faraday Grid’s newly hired C-suite about its finances, and this probing shed light on Scobie’s loans, the seemingly undisciplined spending on expansion, and business travel. Scobie had also handed himself a £200,000 ($253,000) salary increase, documents indicated. Scobie said this increase had been approved by the board.
At some point during the year, Adam Neumann had separately loaned Andrew Scobie $110,000. The idea was that Scobie would use the money to pay off his debts to Faraday Grid, although documents and sources state that didn’t happen. Scobie confirmed the loan, but declined to discuss the terms or repayment.
A further, quiet investigation by in-house counsel Nathan Fagre threw up more unpleasant surprises — credible allegations from staff that Scobie was a bully.
There are six incidents listed in the documents obtained by Business Insider with accusations around Scobie’s behaviour. According to one entry, the CEO responded badly to criticism with: “If you don’t like how it is, you fuckers can go home — there’s the door.”
Four ex-staffers also described a “culture of fear” to Business Insider. “Despite the company’s values of rational thinkers, being open minded, challenging the status quo, if you didn’t bring good news you were quickly on the out,” one former senior staffer said.
Another former employee said: “He could switch between his moods quite easily and my impression was he would just use this to intimidate people basically. There was this one time I heard him yelling in a different office. It was so loud I could hear him through the wall.”
In emails to Business Insider, Andrew Scobie said the allegations were “deliberately misinterpreted” and said there had been a positive culture at Faraday Grid. He denied calling employees “fuckers” but acknowledged that he sometimes swore. He said: “Famously I do swear at times — I wish I didn’t but I do. I am working on improving this. I have never called employees ‘fuckers.'”
Asked if he had shouted at employees, Scobie responded: “I am a passionate person who believed (and still believes) strongly in the goal we had set ourselves to materially reduce carbon emissions and increase human prosperity — occasionally that became audible but I absolutely reject there was any pattern of swearing and temper. This is simply a gross exaggeration.”
After its internal investigation, Faraday Grid’s board felt it had sufficient grounds to fire the pair in June. Amp executive Paul Ezekiel took over in the interim, and the firm scrabbled to stay afloat. But in all the months it had been hemorrhaging cash, Faraday Grid was not making any money.
The company had shown off a prototype transformer at a flashy US launch event in the spring of 2019, costing the firm some $1 million, but it wasn’t close to finalizing a product. British power infrastructure firm UK Power Networks had agreed to trial the technology, but hadn’t committed any funds. One source said ENEL, an Italian energy firm, had also shown interest in a trial.
It was time for drastic action.
Scobie had once boasted that the firm was aiming to employ 1,000 staff by the end of 2019. But the board took immediate cost-cutting measures, and halved Faraday Grid’s existing staff to 100. It also closed a number of offices.
Initially, the remaining staff were still optimistic that Adam Neumann might stump up a lifeline for the company after its drastic restructuring. But six weeks passed, and no funding came. Although Scobie was out, Faraday Grid’s cash shortage was chronic and there was no chance of resuscitating the business.
The firm went into administration in August 2019, and almost all of its employees were let go. The company’s intellectual property and some of its assets were then sold to the highest bidder — straight back to excommunicated Andrew Scobie and his new company, Third Equation.
According to the administrator’s report, parts of the firm he had once valued at $6.5 billion were sold for less than £400,000 ($515,000).
‘The WeWork parallels are so bizarre’
Andrew Scobie says he just wants to get on and run his newly acquired business, now operating under the banner of Third Equation Limited.
This new enterprise is backed by James Brooks, a former Goldman Sachs executive and now chief strategy officer at solar energy firm Lightsource BP. Scobie’s partner Jacqui Porch is the other major shareholder. It remains to be seen whether he can make the Faraday Exchanger, or something like it, commercially viable.
Grant Thornton, Faraday Grid’s administrators, are investigating what happened at the firm as part of the usual administration process. The firm wrote in its administrator’s report that Faraday Grid owes some £8 million ($10 million) to its creditors, including £1 million ($1.3 million) to employees.
Grant Thornton declined to comment, other than confirming that Andrew Scobie and Jacqui Porch had agreed to pay back their loans as part of an agreement to require Faraday Grid’s IP.
And at least one investor is now mulling taking legal action.
Amp CEO Dave Rogers, another Faraday Grid backer, said in a statement: “AMP is considering its own legal remedies arising out of the Faraday situation, and therefore won’t be commenting at this time, except to say that it is satisfied its nominees on the Faraday board acted prudently and appropriately at all times.”
As is often the case when a startup implodes, those left most shellshocked by the chaotic ride are the employees. Those who spoke to Business Insider were left stunned and angry by the past six months. Some were overseas workers dependent on Faraday Grid for their visas.
Former employees are also grimly struck by the similarities they saw with WeWork’s own financial troubles and its CEO’s ignominious exit from the firm. Adam Neumann was ousted from WeWork in September 2019, following intense media and investor scrutiny of his behaviour and the company’s finances, culminating in the derailment of the startup’s planned IPO.
One former senior staffer at Faraday Grid said: “The WeWork parallels are so bizarre. You had lots of cash coming in, no diligence, empowering an egomaniac CEO to conquer the world and an inflated valuation. That’s the SoftBank-WeWork model.”
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