Migme is a good case study on whether it is better to raise Series A or B type funds via the public markets
I am writing this because someone asked me what I thought of migme.
I have commented about this before. Essentially, migme was a US$7 million Series A-“ish” round raised via an IPO route. Then over the last two years raised another US$15 million or so, a la a Series B. So while there is added complexity, clearly there is some advantage to be listed. However, at the end of the day, cash flow and subsequently profit is king.
So in migme case, they are still like most Series A and some Series B type companies: deeply unprofitable and need cashflow a.k.a more funding. One good thing about being a listed entity is that has a bit more options to raise via more non-VC routes such as rights issue, corporate investors, etcetera. They proved this by further raising the US$15 million.
An interesting downside for listco-style raising is that a listed entity structure may deter traditional VC firm from investing. Too many moving parts, less control, public disclosure, and also having to spend more to maintain listing status.
Also Read: migme extends ASX trading suspension in wake of Brexit; bolsters leadership team
So if we treat migme like a usual money-losing Series B firm, then there is nothing surprising about it needing to keep raising. The only issue is that it has to be all public due to listed status!
The question then turns to whether non-VC investors will have the patience to fund migme moving forward. Financials are not pretty. The US$22 million or so raised are all spent. But the business still losing US$10 million per half. In 2015, the negative cash flow of -US$17 million!
In H1 2016, cash receipts grow only seven per cent Q-on-Q, so it is not a massive growth. The good part is that cash receipts was US$12 million in 2015 and looking like US$20-30 million this year. But again it is not revenue, and we don’t know how much is considered high margin stuff, or how much is considered just low margin e-commerce. How much is recognisable revenue, how much is future revenue. Too many questions.
Final point is that the management has too small (about just US$20 million shares or less than 10 per cent of the company) a stake now and it is a concern. Granted the company is extremely generous with options. For the financials of company, the CEO was paid US$1.35 million of which US$933,000 is in options which are included in the salary, though they still were issued very early on so it has low strike price.
It will be interesting to see how this story turns out. There is a limit to investors’ patience and when it is all public, it can all go downhill very fast especially if the key business metrics don’t perform. iBuy or Ensogo is a good example. From 100+M company to just 20+M market cap, CEO resigned and the shares suspended.
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This post was first published in Lim Der Shing’s blog.
Image Credit: Matthew Wiebe on Unsplash
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