DeeR Technology EIS
Overfunding – board approves extra £250k capacity
The original fundraising target of £820k has now been funded (4 March 2021).
Due to continuing investor demand, the board of DeeR Technology has approved an additional £250k capacity. Applications will be accepted on a first-come, first-served basis.
Innovative B2B business with £2.55m contract secured for patented utility meter reading technology
Utility meter reading is perhaps a nondescript necessity – but can potentially have onerous financial and environmental consequences if not done accurately or regularly.
Utility providers may overcharge customers – and in turn risk getting fined millions by the regulator, Ofgem or Ofwat. Meanwhile, unread meters could mean leakages and irregularities go undetected – creating unnecessary greenhouse gas emissions.
DeeR Technology Ltd (“DeeRTech” or “the Company”) has developed novel, patented technology (LimpetReader™) that can be retrofitted to any analogue meter and provide real-time accurate meter reads that meet the regulatory requirements, remotely and at half the cost.
According to DeeRTech, the LimpetReader™ effectively turns any conventional meter into a smart meter.
The Company has made £150k in revenues to date, from customers including the National Trust. It has secured a £2.55+ million contract with water provider Wave Utilities. In addition, potential orders from end customers, utility management providers and utility providers mean there is a sales pipeline worth another £1.5 million (not guaranteed).
DeeRTech is now looking to raise £820k under EIS to help deliver on its new contract, convert sales pipeline, and expand its IP. Over 50% of this has already been secured – including £250k from the Development Bank of Wales. Wealth Club has a £500k allocation.
If all can go according to plan, based on the Company’s forecasts, DeeRTech EIS targets a mid-case return of 8x (50% IRR) – high-case 12x (IRR 63%) – in year 5, after performance fees but before EIS tax relief; high risk and not guaranteed. Please refer to the IM for more details.
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The deal at a glance
|Type||Single company EIS private offer|
|Date started trading||2017|
|Funding to date||£1 million (incl. £0.2 million grants)|
|Co-investors||Development Bank of Wales, private investors|
|Sector||Technology – utility meter readers|
|Fully diluted pre-money valuation||£2.9 million|
|Market size||£22.6 billion (UK)|
|Revenue to date||£0.1 million – £1.4 million revenue forecast in FY22 (not guaranteed)|
|Revenue model||Upfront sale of readers and monthly recurring revenues|
|Profitability forecast from*||July 2021|
|Forecast revenue in year 5*||£6.7 million|
|Forecast EBITDA in year 5*||£3.6 million|
|Target return in year 5*||8x|
|Target IRR*||50% IRR|
- Novel, patented technology that provides real-time accurate meter readings at half the cost
- Significant £2.55+ million contract agreed, with additional sales pipeline worth £1.5 million – not guaranteed
- Large market with little direct competition
- Experienced management team, professional board with credible institutional investor
- Target return of 8x in year 5 (50% IRR) – not guaranteed
- Minimum investment £20,895 (1,050 shares at £19.90 per share)
- Private single company investment with no diversification – high risk
This overview is based on the information available in the Information Memorandum ("IM") prepared by the Company in conjunction with Development Bank of Wales and information provided by the management team and/or Development Bank of Wales. Wealth Club has not independently reviewed or verified the information included, the company forecasts or the deal details. Please read the offer documents carefully to form your own view and ensure you wholly understand the potential benefits and risks.
How does DeeRTech’s technology work?
Co-invented by the two co-founders of DeeRTech, the LimpetReader™ can be fitted to any analogue meter, is non-invasive with no need to interrupt supply or replace the existing meter, does not require manual reads, and is more accurate and reliable than other solutions.
The LimpetReader™ is retrofitted to the front of traditional analogue utility meters. Its sealed housing contains micro cameras which take photographic images, which are then converted into low distortion images. These images are delivered via secure data connection by the Company’s AutoReader to an online portal, where users can access digital readings and the corresponding data value any time from any location.
Unlike Automatic meter readings (AMR) solutions, which still require a manual meter reading to comply with regulatory requirements, LimpetReader™ provides timely and accurate meter readings that comply with regulatory requirements (the LimpetReader™ is classified as a manual read for regulatory purposes).
How the DeeRTech technology works, at a glance
|The LimpetReader™ device is securely attached to the meter without obscuring the meter image||The AutoReader is typically fitted near the top of a manhole, connects to the LimpetReader and sends photographic images back to the database.||The LimpetReader™ Data Service provides reporting, data visualisations and exports by time, location, asset owner and consumption|
How does the business make money and acquire customers?
The Company sells B2B to utility wholesalers, retailers and corporates directly. Currently, it also targets utility managers via an external marketing agency. Devices are either sold upfront for around £400, rented for a recurring monthly revenue stream, or supplied for a partial upfront payment and reduced monthly rental cost.
There are an estimated 56.4 million utility meters in the UK, giving a total addressable market of £22.6 billion. There do not appear to be any businesses with directly competing technology that have scaled (see IM for further details).
Covid-19 and Brexit impact
After some initial delays caused by Covid-19, management believes the pandemic will have a positive impact on the Company as its technology allows for remote monitoring in place of manual meter reads.
While some components are originally sourced from Europe, management does not anticipate Brexit will materially impact the business (but there are no guarantees).
How is the funding going to be used?
Funding in this current round will primarily be deployed towards servicing the Wave Utilities contract and building the sales team to convert sales pipeline, and on further patent protections.
Director Craig Mellor leads the executive team and was brought into the business in 2018 to help commercialise the technology. Craig is a chartered accountant, having qualified at PwC before spending 15 years in the property sector.
R&D Director and co-founder Dr Garry Jackson co-invented the LimpetReader™ technology. He has over 20 years’ engineering experience, including in electronic product design.
They are supported by a board with extensive experience in manufacturing and engineering.
Development Bank of Wales
Since 2001, DBW has invested £800 million of debt and equity funding to support Welsh Businesses, including over £100 million in the year ending March 2020. DBW first invested in the Company in 2019 via a convertible loan note and has received sanction to invest a further £250k equity in this round. DBW has representation on DeeRTech’s board (Steve Smith – DBW representative and Board Observer), and the right to attend the Company’s monthly board meetings. DBW also reserves the right to appoint a non-executive director.
To date, the Company has raised £1+ million from institutions, private investors and in grant funding to develop its LimpetReader™ technology. The Company received EIS Advance Assurance in October 2017 and EIS certificates were most recently issued in 2018.
Initial revenues totalling £150k have been made, with customers including the National Trust. DeeRTech recently secured a significant contract with Wave Utilities, a national water retailer with over 300,000 UK customers. The minimum contract value is £2.55 million, with an opportunity to upsell for more frequent meter readings. In addition to this contract, the Company has a wider sales pipeline across water, electricity and gas utility providers, worth a potential £1.5 million – not guaranteed. Trials have been completed with the NHS, CBRE (the world’s largest commercial real estate services and investment firm), BMW and Sunderland City Council.
DeeRTech anticipates it will be profitable from July 2021 and is forecasting £6.7 million revenue and EBITDA of £3.6 million in five years (FY26). These are forecasts: high risk and not guaranteed, please see the IM for further detail and growth assumptions and risks.
Risks – important
This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice.
This investment is 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 Information Memorandum which contains further details on the considerable risks, alongside the Wealth Club Risks and Commitments and Research Report.
This is a single company offer with no diversification. It involves investing in an early-stage loss-making business, which is by nature high risk and prone to failure. You could lose the amount you invest.
The value of tax benefits depends on circumstances and tax rules can change.
An exit could take longer than the three-year minimum holding period.
Governing Documents – The Company and DBW have confirmed the articles of association and investment agreement linked in the IM are agreed and final form, however, they have not yet been signed and formally adopted. This is expected to be completed before the first allotment date.
Structure and Fees
Wealth Club investors will invest using a nominee structure. This service is provided by Woodside Nominees and is covered in a separate Nominee Services agreement.
The Company will pay a fundraising fee of 5% of the funds raised to Wealth Club Ltd for arranging the investment.
Wealth Club is entitled to a 10% performance fee if investors achieve an exit greater than 2x subscription amount (before tax relief): the fee will be deducted on exit. Wealth Club has a warrant option, whereby it has the option to reinvest its fee into shares in the business, and charges annual monitoring fees.
DeeRTech has invested significant time developing and patenting its innovative technology. The business has now secured a significant contract, providing strong visibility over future earnings and underpinning the company’s forecasts – not common among some early-stage businesses under EIS.
Utility businesses are facing increased governmental and regulatory pressure to provide accurate meter readings and improve their environmental credentials. DeeRTech appears well placed to benefit from this – not guaranteed.
In our view, this is an opportunity to invest in an exciting young company alongside a reputable financial institution with the benefits of EIS. As always, risks apply and experienced investors should form their own view.
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- Single company
- Target return
- Funds raised / sought
- £820,000 / £1.1 million
- Minimum investment
- 26 Mar 2021 for next close