BTU Ventures, BTU Industries, QGEN: the "numbers" don't add up.

Elsewhere in this blog there are several posts that discuss the claims made by BTU Ventures, BTU Industries, and QGEN regarding how they are "powering global development" or in a "quest to power global development." Ambitious claims.

It goes without saying that significant resources (personnel, MONEY, etc.) are required to achieve such world-class objectives. However, it appears that any of the organizations named above could consist of nothing more than:

• Wael Al-Mazeedi
• 10,000 sq. ft. of office space in Waltham, MA
• A Human Resources "person"
• One or two executive assistants

The management fee generated by the two investments remaining in BTU Power Company could not support anything more.

COST OF DOING BUSINESSS

EXECUTIVE
One data point regarding what should be, by reasonable inference, the highest salary of anybody in the group of companies mentioned above (Wael Al-Mazeedi):

• "The Board of Directors has approved, and I am compensated, $440,000 annually..."  [1st Al-Mazeedi Affidavit, Paragraph 15(a)]

OTHER EMPLOYEES
Several data points from BTU Ventures employees that have reported their salaries anonymously in Glassdoor.com [Link: BTU Ventures Salaries | Glassdoor.com]. Only two of the reported salaries are included below:

• Human Resources "person": $134K - $146K
• Senior Executive Assistant: $67K - $73K

OFFICE SPACE
Another data point regarding what it costs to have an office in the "premier office park in suburban Boston"  [Link: Bay Colony Corporate Center]

• The office space occupied by BTU Ventures:
• "...one-floor, 10,000 square-foot headquarters of BTU Ventures, in Waltham, Massachusetts, designed by Sasaki Associates."  [Link: Google books: excerpt from "Corporate Interiors No. 8 by Robert Yee"]
• The approximate rent for office space in suburban Boston.
• "Office rents in the core suburban submarket - Route 128 Mass Pike - at $30.11 are roughly back to where they were prior to the rent spikes which occurred in late 2006 and 2007."  [Link: Greater Boston: Market Viewpoint 3rd Quarter 2010 (Colliers Meredith & Grew Research) - Page 7]
• Assuming approximate rent of $30 per sq. ft. and multiplying by 10,000 sq. ft. = $300,000/yr.

SUBTOTAL COSTS

Al-Mazeedi + 10,000 sq. ft. office + HR person + 2 Assistants  > $1 million

REVENUES FROM "THE BUSINESS"

MANAGEMENT FEE
The structure of the management fee (applicable multiplier) is explained in the 1st Hayat Affidavit  [Paragraph 33]

• "The management fee of two percent (2%) on committed capital and one percent (1%) on actual money called was chargeable only when the invested money was actually put out to investments"
• The latest year (2007) for which Hayat includes any management fee data is 2007: $700,000.

The total amount of  "actual money called" (applicable investment base) is calculated in the section titled "What is QGEN?"

• It was estimated that BTU Power Company invested capital was in the range of $98 million to $118 million. 

SUBTOTAL REVENUES

The current estimated management fee to BTU would be in the range of $980 thousand to $1.18 million.

NET RESULT

Keeping in mind the original premise, that the "business" consisted solely of Al-Mazeedi 10,000 sq. ft. of office space, an HR person, and one or two executive assistants the business model appears to be break-even at best. However, we have not included many other layers of costs:

• ALL the other employees
• Benefits
• Utilities
• Travel
• IT infrastructure and maintenance
• Other customary business costs
• Lots of lawyers (see section titled "BTU Lawyers")
• ...the cost of advice from the most experienced partners at elite Boston firms can be as high as $700 to $900 an hour..."  [Link: From The Boston Globe via boston.com: "In downturn, no break on legal fees" (January 16, 2010)]

If BTU is getting EVERYTHING else in the list above for FREE business is marginal at best. Otherwise, there's no way to see how it is not "underwater" unless some money is coming in to keep it afloat.

THE "NET RESULT" IN AL-MAZEEDI'S OWN WORDS

Al-Mazeedi himself acknowledges in the affidavits he's submitted in Court that various affiliates are essentially not viable as going concerns:

• "Also, the Manager and Ventures needed financial infusion."  [1st Al-Mazeedi Affidavit, Paragraph 27(a)]
• "...infuse monies into the Manager and Ventures to keep them afloat."  [1st Al-Mazeedi Affidavit, Paragraph 27(a)]
• "The Manager, on the other hand, received no management profit and instead suffered a net loss of over $2 million ..."  [3rd Al-Mazeedi Affidavit, Paragraph 9]

Al-Mazeedi explains his strategy to "stabilize" and "grow" the business (presumably so he can keep things afloat and pay back the investors.)

• "...I determined to stabilize the Fund's asset base in the Middle East and North Africa, and to reposition BTU Holdings and the Manager for growth as the only means to enhance the likelihood of returns to the Fund investors."  [1st Al-Mazeedi Affidavit, Paragraph 27(a)]

The last phrase highlighted in bold and red does not read "enhanced or greater returns," it doesn't even read "expected returns".  It just says returns. Period. In finance "returns" can refer to the "return of the investment capital" or "return on the investment capital." The former just means you get your money back. The latter means you get some profit on top of getting your money back. It almost reads as if he's expecting no profits unless things "grow." I don't imagine that he is implying that the return of the investors capital depends on "growth."

CONCLUSION

The numbers don't add up. But then again, that's a conclusion that's been reached before regarding other facets of  the $1 billion company. Maybe BTU Ventures, BTU Industries, QGEN (or the most recent incarnation) REALLY is just Al-Mazeedi, an HR "person," two assistants and 2,500 sq. ft. of office space for each person. If that's not the case, how do things stay afloat?