Electric Monk

Mobile, Professional Services
Cambridge, United Kingdom

The Electric Monk is a labour-saving device, like a dishwasher or a video recorder or a data analytics tool.

10th June

£500,000

Investment sought

9.09%

Equity offered

£5,000,000

Pre-money valuation

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What is Financial Readiness?

Financial Readiness is an indication of how much visibility a company's management team has into the company's near-term performance.

Financial Readiness is an indication of how much visibility a company's management team has into the company's near-term performance. Low financial readiness is not atypical of early-stage companies and is not necessarily a prohibitive investment factor. Nevertheless, management teams with low financial readiness risk allocating resources inappropriately, thus making inefficient use of investors' capital.

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Electric Monk Financial Readiness: 5.0 / 5

Electric Monk has provided a sufficiently thorough overview of its near-term financial plan.

Electric Monk has provided a sufficiently thorough overview of its near-term financial plan. Below is an overview of the available key company financials.

/ Latest available Jan-16
Dec-16
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Sales 1 1 1
Cost of Goods Sold / 1 1 1
Operational Expenses 1 1 1
Capital Expenditure / 1 1 1
Debt 1 1 1 1
Capital invested to-date 1 / / /
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Key Projected Financials

Revenues
Operating Cash Flow and Capital Expenditure
Net Cash Flow
Cash Balance
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How does Electric Monk intend to use the funds raised?

Branding, Product Development, Software Development and General & Admin.

Electric Monk plans to use the funds for £100k on Branding, £150k on Product Development, £50.0k on Software Development and £200k on General & Admin.

Total Funds Needed:STATIC

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What milestones does Electric Monk intend to reach with the current funding round?

The company plans to spend the funds raised as follows: - £50k to revamp its mobile app - £30k...

The company plans to spend the funds raised as follows:
- £50k to revamp its mobile app
- £30k to enhance its e-commerce website
- Recruit a sales team
- Move into a new office space

The company also plans to focus its efforts on marketing the product to consumers via social media and other media presence.

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What is the company's indebtedness currently and post-funding?

Company has borrowed funds from its Directors/shareholders. No net debt post funding.

Electric Monk currently has gross long-term debt of £120k, including £100k of loans from company Directors/shareholders. Investors should diligence the possibility that Electric Monk uses a sizeable portion of the funds raised to repay Director/shareholder loans (plus any accrued interest). It is generally preferable that Director/shareholder loans are interest-free and get converted to equity prior to completion of the fundraising. The company has cash of £50.0k, implying a net debt balance of £70.0k. By the end of Year 1 Electric Monk is expected to have zero net debt.

Indebtedness Ratio
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How much cash will Electric Monk need in the next 12 months (pre-funding)?

Expected to need approximately £465k.

In Year 1, the company expects to have approximately £460k of net cash outflows from operations (i.e. excluding funds received from investors or borrowed). The company does not expect to acquire physical assets (e.g. equipment, etc.) in the coming year. The company will pay interest of £5.0k. The company also plans to repay £50.0k of debt. The company has existing cash of £50.0k that it can use. This creates a net funding shortfall of £465k.

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How will the company meet the £465k funding need?

Planning to raise £500k via the current funding round (currently overfunding).

To cover near-term funding needs, the company plans to raise £500k from equity investors this year. £500k (100%) will be raised via the current funding round. The private campaign is currently overfunding and has raised £650k.

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Will Electric Monk require additional funding within less than a year?

Most likely not. Electric Monk is expected to have positive cash balance at the end of Year 1.

Most likely not, particularly considering that the company is overfunding. Assuming the overfunding is maintained, the company's forecast implies positive cash balance at the end of Year 1. However, they may need to fundraise shortly thereafter.

Year 1 Cash Flow (Jan 16 - Dec 16)

Total Year 1 Cash Outflows:

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What other funding sources does Electric Monk plan to use?

The current funding round is the primary source of funding.

The current funding round appears to be the company's primary source of financing. Investors should diligence any other funding options that management believes it has at its disposal, such as access to business loans, grants or access to other equity investors.

Total External Funding Planned (Year 1):

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How important is it that they meet their Year 1 revenue target?

Electric Monk will be able to cover Year 1 expenses even assuming they generate no revenue next year. However, the company may need to fundraise again the following year. Funds raised can cover approximately 114% of Year 1 expenses.

Assuming this funding round is successful, Electric Monk will be able to cover Year 1 expenses even if they generate no revenue next year. However, the company may need to fundraise again the following year.

In Year 1, the company will incur expenses and other outflows totaling £615k. The private campaign together with existing cash of £50.0k can cover approximately 114% of that. The £100k of projected revenues can help provide an incremental funding cushion over the next 12 months. The company could require additional funding this year if expenses significantly exceed projections. It is therefore not make-or-break for the company, but still important that investors diligence the Year 1 revenue forecast, particularly considering the company is still at the early revenue stage.

Total Year 1 Expenses:

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How optimistic is their projected revenue growth?

Peers at this stage of development typically do not forecast revenue. Electric Monk expects to grow sales by £100k. However, revenue model still not fully proven.

Within the next 12 months, the company expects to grow sales by £100k. Peers at this stage of development typically do not forecast revenue for the next year. Consider that the business is at the early revenue stage, and thus the revenue model is still not fully proven.

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What is the outlook for the next 2-3 years?

2 year sales growth below peers.

Within 2 years, the company expects to have sales of £500k, which is below the median sales growth that peers expect over the same period. By Year 3, the company expects to have sales of £1.0m. This is below the median corresponding growth of peers. Operations are projected to be loss-making for the next 3 years.

The company also expects to spend £100k on physical assets (e.g. equipment, etc.) in Year 2.

In total over the next 2-3 years Electric Monk also plans to pay interest of £5.0k repay debt of £50.0k. This leaves a funding gap of £890k in Year 2. The company expects a funding gap of £1.9m in Year 3, which is likely to trigger further fundraising.

Year 2 Cash Flow (Jan 17 - Dec 17)
Year 3 Cash Flow (Jan 18 - Dec 18)
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What does Return On Investment (ROI) measure?

ROI measures investor returns relative to the amount invested, assuming all equity claims in the firm are equivalent.

ROI measures investor returns relative to the amount invested, assuming all equity claims in the firm are equivalent. ROI is expressed as a ratio and therefore can be easily compared to returns from other investments.

For the purposes of this analysis, ROI is calculated based on the company's future retained earnings and dividend potential. This can be a good proxy of investor returns in cases where the company does not get acquired at a significant premium to its retained earnings and instead returns cash to shareholders only via dividends.

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What is the projected blended ROI for all Electric Monk shareholders?

-1.6x blended Return On Investment in Year 3.

Assuming Electric Monk does not get acquired, the blended ROI indicates how much the company might be able to return to all its shareholders in aggregate, as a proportion of the total equity invested.

In the case of Electric Monk, and assuming investors in this round receive 30% tax relief (EIS), blended ROI is projected to be -1.6x in Year 3. Negative ROI indicates that net shareholder returns will be less than the total equity invested in the company by that point.

Blended Return On Investment (ROI)
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What is the projected 3+ year ROI for the shareholders who enter in this round?

-1.1x ROI after 3 years.

For the purpose of this ROI calculation we assume that Electric Monk does not get acquired, raises £890k after 2 years at a valuation of £10.3m (1.8x the current post-money valuation), raises £1.9m after 3 years at a valuation of £14.5m (2.6x the current post-money valuation), that current shareholders do not participate in future rounds and that all equity claims in the firm are equivalent. Further, we assume investors in this round receive 30% tax relief (EIS) on their investment.

This implies Year 3 ROI of approximately -1.1x. In other words, after 3 years, net returns attributable to the shareholders who join in the current funding round will be less than what these shareholders have invested.

Return On Investment (ROI) for Current Funding Round
Future Funding Rounds
% Ownership of Investors Entering in this Round
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What is Cash Return on Capital Invested (CROCI)?

CROCI is a way of looking at a company's capital efficiency.

CROCI is a way of looking at a company's capital efficiency. It measures annual cash generation in proportion to the company's aggregate invested capital (debt and equity). High CROCI implies high cash generation relative to the company's assets.

When looking at CROCI, it is important to consider how it develops over time. Its volatility is an indication of how rapidly the company's capital efficiency is forecasted to change.

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What are the projected cash returns for Electric Monk?

Significantly lower than peers.

In the case of Electric Monk, cash returns are projected to grow from -1.5x of invested capital in Year 1 to -1.0x in Year 3. This return is significantly lower than the Year 3 return projected by other companies currently fundraising or that have fundraised in the last 12 months. Negative returns are due to the projected negative operational cashflow for the business.

Cash Return on Capital Invested
CROCI Year-on-Year Expansion
CROCI Volatility
LTM (Jan 15 - Dec 15) Year 1 (Jan 16 - Dec 16) Year 2 (Jan 17 - Dec 17) Year 3 (Jan 18 - Dec 18)
n/a n/a n/a relatively high
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Will the company be paying a dividend?

The company is not planning to pay dividends in the next 3 years.

The company is not planning to pay dividends in the next 3 years.

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Benchmarking Electric Monk's valuation vs. peers

Pre-money valuation of £5.0m compared to peer valuation mid-range of £618k to £2.6m.

The following chart compares Electric Monk's £5.0m pre-money valuation to the pre-money valuation levels of companies that are currently fundraising or have recently fundraised successfully.

Valuation Benchmarking
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A different way to estimate Electric Monk's valuation

Calculate how much Electric Monk should be valued today, based on how much it could be worth in the future.

1) How much do you think Electric Monk will be worth from now (future value)? £

2) What is your confidence level?

3) Assumed tax relief on intial investment:


Note: Valuation assumes all equity claims in the firm are equivalent, and no dividends.

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