Review: SafeToNet EIS

This is a further opportunity to invest in SafeToNet Ltd under EIS, ahead of a £15.8 million Series B round led by Panmure Gordon & Co. This £5 million private offer is available exclusively to Wealth Club and West Hill Investors.

SafeToNet has ambitions to become a global leader in cyber safety. It has developed an award-winning pioneering mobile app that runs unobtrusively in the background whilst children use social media, messaging apps or the wider internet. The app’s clever technology detects and stops harmful content in real-time, before any damage is done. 

After thoroughly testing the accuracy of the app with impressive results, SafeToNet is now in the process of commercialising it. It has already signed significant contracts, including with BT-owned mobile network operator EE. 

SafeToNet is now seeking funding to help it continue to grow. The minimum investment – exclusively for Wealth Club investors – is £20,006 (normally £56,000).

Read important documents and apply

Highlights

  • Follow-on EIS funding round, prior to Series B investment
  • Award-winning, commercialised technology with contracts with mobile network operators, including EE in the UK, Deinhandy in Germany and Oreedoo in the Middle East
  • Considering an IPO on AIM within three years– not guaranteed
  • Highly experienced management team with significant personal investment 
  • Pre-money valuation of £51 million
  • Forecast EBITDA of £75.9 million, target return of 22x in 2023 (not guaranteed)
  • EIS Advance Assurance received
  • Single company private EIS offer for experienced investors only
  • Minimum investment of £20,006 – normally £56,000 (Wealth Club investors only)
  • You can apply online. You will also need to become an “elective professional client” of West Hill before your investment is accepted

How does SafeToNet protect children online? Watch our video interview with co-founder and CEO Richard Pursey

Recorded 29 January 2019

The offer

It is estimated around 5.43 million young people in the UK have been the victims of cyberbullying. 1.26 million suffer extreme cyberbullying daily, in some cases with devastating consequences. 

Cyberbullying is just one of the many threats the internet poses. Every week there seems to be a different news story about children coming to harm online: from sexual extortion to online grooming or radicalisation.   

Facebook, WhatsApp, Snapchat, Instagram and other platforms often play a part in those stories and are consequently under increasing pressure to improve their screening processes. 

But what could parents do to protect their own children?

SafeToNet has developed a solution: a child online safety app powered by proprietary software that filters unwanted content and helps parents safeguard their children without spying or prying.

The SafeToNet technology combines the latest psychological and clinical research with impressive machine learning techniques, sophisticated data analytics and artificial intelligence to identify when a child is under threat or in distress. 

Once the SafeToNet app is installed on a child’s device and linked with their parents’ SafeToNet account, the software scans for any inappropriate content on their device. If it finds an inappropriate image, for instance, it will quarantine it and blur it so it no longer presents a sharing risk.

The software runs continuously in the background on the device so it can detect potentially harmful content – from text messages to images and videos – in real time before the damage is done. 

If any risks are detected, the app sends an alert to parents, without however sharing the actual content, so as to respect the child’s privacy.

Crucially, the app can also step in in real-time and disable phone functions, lock out platforms and apps such as Snapchat and Instagram, so that inappropriate content is stopped from being seen or shared. For instance, it could block access to a phone’s camera if it believes the child might be about to use it for sexting. 

This ability to pre-emptively block harmful content via text, picture, audio or video, is believed to be unique. The suite of solutions provides SafeToNet with a significant competitive advantage, strengthened by the company’s IP and family of patents.

SafeToNet EIS appCommercial progress

The SafeToNet app is currently available to download from Google Play for Android and will soon be available on the App Store for iOS devices. 

Direct-to-consumer sales are expected to complement the primary route to market, which is through mobile network operators. This distribution model should, in theory, enable SafeToNet to scale more effectively and quickly than it would by distributing direct to consumer only.

The company has already made significant progress in securing distribution contracts with large telcos. The first is with EE Limited, the UK’s largest mobile network operator (“MNO”). The SafeToNet mobile App will be available to EE customers via certain mobile phone packages later in 2019. EE has approved a significant seven-figure budget to market the app on launch. The marketing campaign is expected to begin in Q2 2019. EE has 700 high street stores and over 29 million customers across the UK. 

SafeToNet has also signed contracts with Aptus 1206 GmbH, the major shareholder of the group that owns German mobile phone store operator Deinhandy, which has around 200 stores across Germany. SafeToNet is expected to feature on 4,700 German billboards from the second week of July 2019. The campaign will be announced at a launch event on 1 July by the German Interior Ministry, which is funding the campaign. 

Another significant contract has been signed with Ooredoo. Ooredoo is owned by the Qatari Royal Family and is approximately four times larger than BT globally, with over 125 million customers across 16 countries in the Arabian Gulf, Middle East, North Africa and Asia regions. 

The app is available in several languages including English, German, Spanish, Swedish and soon Mandarin and Arabic.

SafeToNet awardsFunding 

To date, the business has raised £12.6 million from the founders and private investors, including £9.6 million Series A funding from West Hill Capital, which was oversubscribed.

In May 2018 SafeToNet acquired Visr Inc, a leading Canadian behavioural analytics and digital wellbeing technology company. 

Series B funding of £15.8 million is expected to follow the current £5 million EIS round and will be led by Panmure Gordon & Co, possibly at a premium to the EIS share price although this is not guaranteed. It is anticipated Panmure Gordon & Co will raise the Series B investment from a number of Silicon Valley technology angels and family offices. The combined proceeds of £20.8 million will be used by the company to expand into USA and the Far East. 

What does the SafeToNet technology do?

There are two elements to the technology. The first is the Device and Monitoring Software (DAMS). This allows a parent or guardian to block individual apps and set parameters for use, as well as being able to manage or disable the device if required. 

The second element – the real innovation behind it and where the Visr acquisition adds value – is its Intelligent Content Blocking Software (ICBS). This is an Artificial Intelligence system which learns and monitors user behaviour, detects when they might be being threatened and blocks content in real time. This is a significantly differentiated proposition. ICBS analyses and interprets the personal information of those it safeguards. It analyses patterns of behaviour, determines personality traits and builds personal profiles so that it can calculate what should and should not be blocked. Knowing the difference between banter and aggression is key to successful content assessment, filtering and blocking. Importantly, children don’t feel like they are being spied on. The ICBS doesn’t share content, it analyses it. The parent never sees what a child is sending or receiving as the software is designed to respect the child’s privacy.

Management team

The company is headquartered in London with an R&D office in Toronto, Canada, and a sales office in Cologne, Germany. Overall, the SafeToNet Group employs 54 people worldwide (as at February 2019).

The management team is highly experienced and has personally invested significant sums to the business. 

CEO Richard Pursey featured in the Telegraph’s “Tech Top 100 Entrepreneurs List” in March 2019. Richard has worked in IT and technology for 30 years. Before SafeToNet, he founded and sold technology businesses over 20 years. One of the previous businesses, Adam Associates / Neverfail, used similar behavioural patterning techniques to those used by SafeToNet but focused on business.

The company has won various awards. SafeToNet is one of 5 companies in the world to be a member of the Go-Ignite accelerator, a consortium of Deutsche Telekom, Telefonica, Singtel and Orange, giving SafeToNet access to over 1.2 billion customers worldwide.

Target returns

The business has made great strides in securing contracts and commercialising the technology, however, it is behind its original financial forecasts. 

As of October 2018, the company was pre-revenue. For the year ending October 2019 it is expected to deliver £2.8 million turnover and a £12 million loss. The company expects to grow exponentially reaching sales of £156 million and EBITDA of £76 million by October 2023. This could deliver a target return of 22x for investors in this round if these forecasts are achieved and the EIS offer and Series B round are successful. Returns are not guaranteed.

The target return reflects the high risk but high growth prospects of the offer. Please remember the company is pre-revenue early stage. Please see the offer document for further details of the company’s forecasts.

Exit options

If the Series B funding round is successful, the company intends to plan an IPO on AIM, although this is in no way guaranteed. Alternatively, the company could have a number of other exit options, given its potential scalability. This should be considered a long-term, and high-risk investment, where exit options and timeframes are in no way certain.

Risks – important 

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.

EIS investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

This is a single company EIS offer with no diversification. It involves investing in an early-stage business which is by nature high risk and prone to failure.

The value of tax benefits depends on circumstances and tax rules can change. 

Fees and charges

Investors are investing in the company directly so will pay no direct initial or ongoing charges. West Hill will pay an introducer fee to Wealth Club of 3.3%.

Our view

Whilst SafeToNet is behind the forecast set at the time of its earlier EIS offer, the company has achieved significant milestones including its acquisition of Visr. The progress made with contracts is impressive. 

If you’re an experienced investor and wish to invest, please read the Offer Documents carefully to ensure you understand the risks and benefits, and consider applying soon, as we expect this offer to fill fast. You will need to complete West Hill’s elective professional client questionnaire and declaration to confirm you have the knowledge and experience to understand the risks before your investment is accepted

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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

Read more and apply online

Read more about this offer, including the risks; download our research report and all the documents. You can apply online in minutes.

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