Fishy Filaments have an interesting product in a growing market. All as yet untested. They are now overfunding on Crowdcube - WHY? Why sell off your company equity at this price when you will need it later?
We dont usually comment on live pitches - we dont like to influence. But in this case the pitch has flown past its very modest target in just a few days. So it's safe to do so.
FF solves a variety of very topical problems and in the model, makes money. Its still at a pre revenue stage - in fact its a pre production stage. Sensibly the company was offering 25% of it shares for £150k. People loved it and bought in. So much so, that as of now, they have sold 30% of the company at this value. Now the plans we have seen, do not show any extra funding - it survives from now - zero income, zero product and zero market position, to a turnover of £500k in 2018/19 -ie next year. For some reason the turnover only increases to £700k in 2019/20. So drops from 500% to under 50% annual growth. Capex is £120k over the next two years, leaving very little free cash for running the operation.
The cash flow for 2018/19 is derived entirely from the sale of the products (remember still untested in a real sense) on a very high GPM. Fall in projected sales would be fatal.
So guess what, they will need to raise more funding or borrow in 2018 and 2019. This reality is not shown in the Crowdcube pitch. Year 2018/19 starts with a very small bank balance.
But hang on, they are currently giving away their equity at a company value of around £600k and overfunding. So what will they have left? Surely one key element of seed funding is to raise enough capital, at a price that will attract risk takers, to prove the concept and get to revenue sales. Then you can up the value and raise more capital. If you have, as seems to be the case here, used up your equity, then you may well have shot yourself in the foot. You can only have so much equity and founders do tend to want to keep a solid block. So assuming they go on in this pitch but wish to keep 50% for founders, you have not got a play with in rounds 2/3/4/5/6.
The financials suggest a lack of attention to detail - dates are wrong, GPM is wrong etc. So be careful out there. Great idea but has anyone actually worked any of this out? Why wasnt there any mentoring? And if there was, you should be ashamed.
No doubt the founder may not have the necessary expertise to get this off the ground without further funding, especially considering he's talking about hiring staff from the money raised.
ReplyDeleteBut one of the major complaints about CC has been the ridiculous valuations for just about every company, do you not feel that at least in some ways this valuation is a good step for a pre rev company? Yes there are economic issues to take into account but a question has to be asked about how much more he could realistically have valued his company at.
AT
I agree and that was my point in the post. This pitch has flown because of its sensible valuation. But and I go on to make the crucial point - this is seed funding to get to a stage where the company can raise a larger amount at a much higher value once the concept is proven. If they sell all of their equity (why are they over funding at this valuation is the real Q) at the current value then they are screwed for future raises. I think its also important to note that the financials are pretty good tripe and there is no mention anywhere of raising more cash. That's either naive or dishonest. It seems that the new CC policy is to wash their hands of any responsibility whatsoever.
Delete