Friday, 18 May 2018

Sugru debt facility WAS dependent on sales targets


For those wondering why the bank pulled a further £1.5m debt facility on Sugru, with its resulting fire sale for 9p in the pound, here it is.


The company had this note on its Crowdcube 2017 raise - you had to download it to see it as it wasnt in the main text.

Clydesdale Loan The Company has a £3.5 million loan facility from Clydesdale Bank PLC (“Clydesdale”), of which £2 million was drawn down in November 2016. The agreement for this loan includes the following terms:  A further £1.5 million may be drawn down from October 2017, provided the Company meets certain revenue targets. 

Now the obvious problem with this is, the company assured investors that the sales figures were doable - but did they really know that they were not. The outcome has been so far off the mark that you do have to wonder. It would not be the first time a company has come back to Crowdcube and asked investors for more cash when they know it is the last throw of the dice.

  

3 comments:

  1. Clydesdale obviously did in November 2016 if they put in the covenant. It’s a ridiculous thing to say they mislead investors on Crowdcube when the sales target to unlock the additional £1.5m would have been writtten very clearly in the loan agreement. That’s pretty standard in venture debt. They were raising equity again in early 2017 from recollection (Q1) so things must have gone off a cliff very quickly.

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  2. Is is really ridiculous to say that in 2017 when they raised a 2nd round on CC, they had figures they used for the raise - ie glossy and they had reality figures (not given to investors)- not so shiny? And of course they had the bank loan targets which we dont have numbers for. Of course its standard in any debt arrangement to set KPIs - that isnt the point here. The point here is at what stage did Sugru and Crowdcube know that the figures being presented to investors on an FCA regulated site, were misleading. I think your assumption things went off a cliff edge is wrong - we warned about their failure to get even close to their sales numbers back in 2016 and warned investors in 2015 that their expectations were fantasy.

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  3. According to the auditors' notes in the Dec 2016 accounts, "the bank loan is is classified as being due within one year due to a breach of a loan covenant". If a loan covenant had been breached for the initial £2m, it stands to reason that Clydesdale would have not been likely to provide the second tranch (£1.5m). To me, a breach of a loan covenant is quite significant and would normally be cause for concern. Why are shareholders only hearing about this breach when the accounts were publicly filed with Companies House and not during the Crowdcube raise?

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