Switching the trigger

Den are back on Seedrs for their fourth raise and it’s gone straight into overfunding. At the time of writing it was up to £1,135,243, over £100k clear of their £1,000,000 target.

Den’s first two raises back in April and October 2015 were equity based, at those times the valuations were £1.173m and £1.323m respectively. For their third raise, instead of going for equity they went for a convertible note which funded in July 2016. The note essentially gave investors a conversion to equity upon the execution of a triggering event at a discount of 20% of the valuation at the time of the event. Triggering events were determined as one of the following:

  • An equity raise > £1m
  • A change in control of the company
  • An IPO

So, this latest fundraise should trigger the conversion at their latest valuation of £8,008,779. I should also mention that the note also had terms that meant if a triggering event hadn’t occurred by 5th April 2017 then it would convert at a valuation of £1.7m, so we knew this was coming. Further to this, the note had a valuation cap of £10m – Isn’t it amazing how close we are to the cap?

I can’t really work out which of the campaigns I invested in by looking at my portfolio page any more, I believe I have £100 from the first two rounds and some from the conversion, but I’m not sure. What I do know is that they’re going to have to close this round pretty quickly to get it through by 5th April, but if prior raises are anything to go by, they’re going to need a buffer.

DateSoughtPledgedRaisedDrop
Apr-2015£102,000£235,040£150,000-36.2%
Oct-2015£55,000£407,340£343,430-15.7%
Jul-2016£150,000£847,000£625,450-26.2%

The pledged column shows how much was pledged during the actual campaign before it closed, the raised column shows how much money was really raised after investors dropped out or didn’t pay for their investment. On average, across the three campaigns actual investment dropped by 26% when compared to the amount raise – quite a significant amount. As such, I’m sure Den will want to stay open until they reach at least £1.25m to get themselves a buffer, but if the raise doesn’t complete by April 5th they’ll have to convert the note at a valuation of £1.7m.

For reference the triggering event was defined as;

“An Equity Fundraise – defined as the Company raising investment capital of at least £1m from one transaction or a series of transactions, in exchange for the issue of Ordinary Shares. The Seedrs fund raise does not count as a transaction”

And the long-stop terms as;

“If conversion has not been triggered by the longstop date (5th April 2017) shares will be issued based on the lower of a minimum pre-money company valuation of £1.7m or the price for a share issued during the period.”

To me that says the deal has got to be signed, sealed and delivered by 5th April, the raise on its own is not enough, the transaction needs to be completed in order for it to be defined a transaction. But that’s just my view, it’s going to be interesting to see how it plays out.

Incidentally the new pitch and the last ‘convertible’ pitch raises a few questions around pricing when compared to the first two. It looks like their initial target pricing was way off the mark. The convertible saw some already significant increases in target price, this latest pitch sees these targets rise further still – I suspect this is costing a lot more than they initially though.

 Round 1 (Apr '15) / Round 2 (Oct '15)Convertible (Jul 16) / Round 3 (Present)
Single Gang Light Switch£8.99£19.99£30.00
Double Gang Light SwitchNot QuotedNot Quoted£35.00
Single Plug Socket£9.99£19.99£35.00
Double Plug Socket£15.99£24.99£40.00
Occupancy Sensor£24.99£24.99£25.00
Remote£11.99 - £24.99£19.99£20.00
WiFi Hub£59.99£59.99£60.00
AppFreeFree
£1 per/month for Premium?
Free
£1 per/month for Premium?

For a single gang light switch I think we’re venturing into unreasonable territory when it comes to pricing at £30, even at trade cost (£17 in the case of the single gang light switch) these are still expensive. A house isn’t sold on the light switches and plug sockets, are builders really going to pay more than 5x the cost of a decent quality ‘normal’ light switch when most of the time they don’t even fit the decent quality switches in the first place, often opting for the cheapest pieces of crap they can get away with.

All this isn’t helped by the fact that they’re still waiting for their patents and they’re taking an age to get to market. I can’t help but feel that the likes of Honeywell or Crabtree are going to come along and piss on their cornflakes if they don’t get to market soon. They’re supposed to be getting ready to start production in April, let’s see if they hit their September 2017 retail launch date.

In summary, I’m not convinced by this one any more, I have money on the table but I’m not going to be adding to it.

Last updated: April 21, 2017 at 20:30 pm

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