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(Veteran tech analyst Jon D. Markman publishes Strategic Advantage, a guide to investing in the digital transformation of business and society. Click here for a free trial.)

It’s the beginning of a new year and one of 2020’s biggest momentum winners is getting clobbered. This is what you should know about QuantumScape ( (QS) - Get QuantumScape Corporation Class A Report).

Shares of the solid state battery maker slumped 37% Monday after early investors filed to sell up to 306 million shares. The company will receive only $208.7 million from the exercise of warrants.

It’s a cautionary tale about chasing momentum.

QuantumScape is a terrific investment story. The company is working on a solid state lithium metal battery that could be used in everything from electric vehicles to smart watches. The advantages over current lithium ion power plants is stability, safety, greater power storage and lower cost of production. That’s the theory.

In reality, despite promising research, QuantumScape has never been able to make solid state batteries bigger than the average Apple Watch cell.

What the San Jose, Calif.-based company does have is great science, the backing of a Bill Gates fund and Volkswagen, plus a lot of extremely enthusiastic retail investors.

The science piece is important. The startup was founded in 2010 by Jagdeep Singh, a computer science engineer and successful entrepreneur, and Fritz Prinz, a Stanford University professor. The pair began working on a breakthrough solid state battery technology. A year later they had a research unit in place and the backing of Volkswagen, the world’s largest automaker.

Originally Volkswagen agreed to invest $100 million to establish joint production. The German carmaker made an additional $200 million investment in June.

Investors learned in August that Bill Gates became a QuantumScape investor through his Breaking Energy Ventures fund. In a GatesNotes blogpost, the Microsoft ( (MSFT) - Get Microsoft Corporation Report) founder noted the potential for solid state batteries to change the trajectory of EVs and greenhouse gas emissions.

The takeaway should be that QuantumScape has a legitimate big idea. The company is also years away from real revenues.

Shares began trading in August when the company merged with Kensington Capital Acquisition, a special purpose acquisition company. The combined business was infused with $1 billion in financing from the Qatar Investment Authority and Volkswagen.

Within two days of listing on the New York stock exchange the new stock surged from $10 to $25. Shares reached a high of $132.70 on Dec. 22.

The filing with the Securities and Exchange Commission makes clear that early investors are the sellers. This is not unusual. Kensington Capital Acquisition is essentially a financier. It is likely selling to create liquidity to do other SPACs. The goal with QuantumScape was never longer-term investment.

That said, investors clearly became too optimistic about the near term prospects of the business. Singh, QuantumScape’s chief executive has made it clear that the company is years away from a viable commercial product and revenues. He has also noted that the opportunity is in the hundreds of billions of dollars.

The questions for investors are a) what is a fair price for the technology, and more important, b) when will the investment narrative will return to positive? Given that in excess of 300 million new shares are coming to market, that should be in the $30-$35 price range.

Investors should wait for that pullback. Longer-term QuantumScape shares should rebound as the company and Volkswagen move closer to production decisions.