Fast2Fibre EIS

Please note, this offer is now closed.

The review below was published in January 2020. Please also read the latest Investor Update

Telecom providers across the globe are under increasing pressure from customers, corporates and governments to deliver superfast, if not ultrafast, broadband. To achieve this, they must upgrade hundreds of millions of kilometres of copper broadband cabling to fibre optic. 

Conventional upgrade methods can be slow-going, expensive and require extensive trenches to be dug along roads and in urban areas – disrupting traffic, businesses and daily lives.

But what if there was a more efficient way forward; use the existing cable as a duct, pull out the copper core and replace it with fibre – without digging up all the roads?

Fast2Fibre (“F2F”) has developed and patented a process to do this. It has the potential to be up to 80% cheaper and up to 30 times quicker. Moreover, it dramatically cuts disruption – it only requires small holes to be dug at 40-150 metre intervals to access the cable (or further apart where manholes can be used).

Five international telecom operators, including Openreach UK, a division of BT, and Liberty Global, which owns Virgin Media, have now successfully trialled F2F’s method. 

The company is expected to sign its first two commercial contracts – potentially worth up to a total of £16 million – shortly (not guaranteed). 

To help deliver on these contracts and support growth, F2F is now raising £1.5 million under EIS, of which £500k is exclusively allocated to Wealth Club investors. The offer is arranged by Marechale Capital LLP (“Marechale”), an established corporate finance advisory firm, and is only available to Marechale and Wealth Club investors. 

If all goes to plan, F2F aims to be profitable by December 2020 and deliver investor returns of 6x after four years – not guaranteed.  

The minimum investment through Wealth Club is £10,256 (normally £25,000) and you can apply online.

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights 

  • Patented no-trench solution to replace and upgrade legacy cabling, potentially reducing costs and time by up to 80%
  • Significant addressable market and demand for faster broadband
  • Over £4 million invested into the technology to date, including £1.1 million from founders and management
  • Two contracts agreed in principle with blue-chip customers, expected to be signed and commence in Q2 2020 – not guaranteed
  • Aiming to be profitable by 2021 and deliver revenues of £11.2 million in FY23 – not guaranteed
  • Target return of 6x before EIS tax relief after four years – returns and timeframes not guaranteed 
  • Pre-money valuation of £4.4 million (fully diluted) 
  • High-risk, pre-revenue single company private offer with no diversification
  • Expected to allot in the 2019/20 tax year
  • Minimum investment £10,256 (normally £25,000), you can apply online

Fast2Fibre EIS

This overview is based on the information available in the offer documents prepared by Marechale Capital LLP, and information provided by the management team. Wealth Club has not 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.

The market

Urgent demand for infrastructural upgrading in the UK comes as we fall behind other developed countries – we rank 35th in the world for broadband speed, while  only 7% of the UK homes and business have full fibre to the premises, compared for instance to Portugal (89%), Spain (71%) and France (28%). 

To address this, the UK government has laid out a multi-billion-pound plan to have full fibre broadband for 15 million UK homes by 2025 and full fibre broadband coverage by 2033.

Meanwhile, the EU initiative for every household to have access to superfast, if not ultrafast, broadband by 2020 also finds many countries still lagging behind target.

To achieve this, hundreds of millions of kilometres of conventional copper cabling need to be upgraded to fibre optic. The resulting infrastructure upgrading market is estimated to be worth €500 billion in Europe alone.

The next-generation cable extraction technology offered by F2F could help telecom operators meet their upgrade goals in a fraction of the time and cost of conventional methods. 

The offer

F2F has invested over £4 million to develop patented “trenchless” technologies.  

F2F now owns two patented processes, and has licence rights over a third, for the extraction of the copper inner core of telecom and power cables. 

The technology

The technology uses a combination of hydraulics, heating and compression. F2F injects proprietary specialised biodegradable lubricating fluids under pressure between the cable sheath and the copper inner core. This compresses the core, which is then removed using a winch or by hand. The replacement fibre cable can then be drawn through. 

This means there is no need for expensive and disruptive digging – “trenching” – around crossroads, bridge crossings, major traffic junctions and city centres. Instead, small holes are dug every 40-150 metres (or further apart where manholes can be used) to access the cable network. This means fewer permits and planning approvals are required, so projects can start more quickly, and the risk of damaging existing infrastructure is significantly reduced.

Fast2Fibre’s technology can replace between 40 to 150 metres in a single extraction and more than 500 metres in a single day, nearly 30 times what’s possible with a construction crew and conventional methods in difficult or complex environments.

The technology is particularly cost-effective in more complex “high-value” projects. 

A recent 130 metre cable replacement trial in Cambridge demonstrated the ability of F2F’s technology to replace the cable at a cost of £55 per metre compared to the current digging method at a cost of £295 per metre, delivering a cost reduction of up to 80%.

How Fast2Fibre's technology works at a glance

This video has been produced by Fast2Fibre and published on 18 October 2016.

Business model

F2F sells to primary contractors working for telecom providers, and also directly to telecom providers who have their own internal contractors. In both cases, the delivery model is the same: F2F supplies the machinery, fluids, training of staff and a dedicated support manager – but does not deliver the service, so operating risk is transferred to the primary contractor. 

F2F believes no other company selling B2B to telecom providers uses a similar method and business model.

Commercialisation

Following successful trials, F2F expects to sign two contracts shortly.

The first is with CETIN, a Czech telecom company, de-merged from O2 Czech Republic in 2015. Commercial terms have been agreed, the contract is expected to be signed imminently and the project to commence in Q2 2020.

The second contract is with Liberty Global which has already completed a successful trial with F2F. Subject to a final trial, this contract is expected to be signed and commence in Q2 2020. 

Together, these two contracts could potentially be worth a total of £16 million. As with any contracts, the deals are not certain until signed.

In the meantime, F2F is also discussing potential opportunities with Openreach UK (a division of BT), as well as operators in Europe, Central and South America, India and South East Asia and Canada. 

Funding

Progress to date has been funded by investment of over £4 million from founders and management (who have collectively invested £1.1 million), majority shareholder Mark Tellwright, EU grant funding and other private investors.

Now F2F is raising £1.5 million under EIS at a pre-money valuation of £4.4 million (fully diluted) to deliver its first paid commercial contracts.

Funding will be used to:

  1. Develop the sales and operational teams and invest in capex to deliver initial projects;
  2. Fund ongoing R&D to maintain and develop the technology offering; and
  3. Fund working capital, including a small repayment of grant funding overdrawn during 2018.

The offer is arranged by Marechale Capital LLP and is only available to Marechale and Wealth Club investors. The minimum investment through Wealth Club is £10,256 (normally £25,000), equivalent to 320 shares.

Target returns

F2F forecasts sales of £11.2 million and EBITDA of £4.4 million by FY23. 

It targets a return of 6x after four years (before EIS tax relief), based on a multiple of 6x EBITDA, if the business achieves its forecasts.

These are targets and there are no guarantees.

Management team

Tom Fitzherbert (CEO) joined the business in 2014 and is an experienced CEO with over 30 years’ experience at director level across businesses in research and technology fields. Tom’s experience includes four years as MD of The Options Group, a leading outsource provider which employed over 2,000 staff and was later merged with Mitre Group and sold for £208 million. 

Head of technical development Laslo Nusbaum also joined in 2014 and developed the F2F process and IP, and has over 14 years’ experience across hydraulic, electrical and pneumatic engineering.

Senior management is supported by an experienced non-executive Chairman, Paul Hughes, who has over 30 years’ experience in corporate banking and as a non-executive director. The experienced operational team is led by Ashley Hayden, who ran Openreach’s South East Fibre and Network Delivery Build Team managing over 500 engineers .

The Company currently employs six people. This is forecast to increase to 28 by the end of FY23. 

Corporate Structure

Fast2Fibre Limited is a wholly owned subsidiary of Sparkledun Limited. Investor capital will be invested directly into Sparkledun, a private limited company which acquired Fast2Fibre Limited in January 2018. 

Fast2Fibre Limited in turn wholly owns Deflux Holdings Limited, which holds the patents. 

Exit options

The management team intends to stay in the business for the mid to long term in order to fulfil its growth ambitions. 

An IPO, trade sale or sale to private equity are some of the options, but timeframes and exits are not guaranteed. 

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 tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments on the Wealth Club website and the Information Memorandum provided by Marechale to ensure you fully understand the risks.

The Company is seeking to raise up to £1.5 million to achieve its plan.

This is a single company EIS offer with no diversification. It involves investing in a pre-revenue business with a monthly cash burn of £60k. Early-stage businesses like this are 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. Marechale, which arranged this private offer, will pay an introducer fee of 3% to Wealth Club. 

Our view

F2F has created a faster, easier, greener and more economical process for upgrading telecoms and power copper cables. We believe this is a potentially exciting opportunity to co-invest alongside Marechale and angel investors.  

The potential market is enormous with communication providers in Europe and further afield requiring innovative solutions to increase their speed of fibre delivery – in the UK alone, BT has an estimated 74 million kilometres of cabling that need upgrading. 

New EU targets estimate the cost to upgrade could be as much as €500 billion, which demonstrates the potentially significant market opportunity for F2F. 

If F2F can successfully roll out its technology and scale, it could be an attractive proposition for trade buyers in the sector – although this is not guaranteed.  

The company has made encouraging progress to date, investing in its technology, securing its patents and completing successful trials with large multinational telecom providers. Now it needs to commence and successfully deliver its first commercial contracts – until then, it is a pre-revenue business and you should view this as high risk.

For experienced investors comfortable with the significant risk, this is a promising co-investment opportunity to invest in an innovative, early-stage business with significant potential, but you should make up your own mind.

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.

The details

Type
Single company
Sector
Technology
Target return
-
Funds raised / sought
-
Minimum investment
-
Deadline
CLOSED
Last updated: 3 April 2020

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