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Co-invest with West Hill Capital investors: recurring-revenue fintech with clients Admiral and MORE TH>N and strong pipeline
Gobsmack Holdings Limited (“Gobsmack”) is a recurring-revenue SaaS fintech company. Its proprietary Customer Engagement Centre/digital wallet platform technology enables blue-chip brands to cross-sell products, incentivise loyalty and significantly increase customer lifetime value – through an innovative client-bespoke app.
Co-founded in 2015 by the former COO of AXA’s Commercial Lines & Personal Intermediary business, Gobsmack has already attracted an impressive client list and pipeline, including MORE TH>N (1.4 million customers) and Admiral (4 million customers). The Company is in advanced discussions with The Post Office, SAGA and JaJa (8 million customers combined) to launch next year. If all the above companies contracted with Gobsmack to adopt the Customer Engagement Centre/digital wallet offering, the combined contract value would be expected to be worth in excess of £30 million over the next 3 years (not guaranteed). In addition, Gobsmack is in discussions with a number of other pipeline customers, including AAMI (part of the Australian banking group, Suncorp), where a letter of intent has been signed which could provide Gobsmack with access to a further 4 million customers.
Contracts are based on multi-year licences and over 90% of projected revenues are recurring. Actual revenues in 2019 were c.£2 million, including a material amount of payments for IT development work, which is not recurring. Although total revenue is expected to fall to £1.2 million in 2020, recurring revenue is expected to more than double, with further strong growth anticipated in 2021 to £3.3 million, as the new major clients come on board. In 2022, the Company expects to be cash-positive with rapidly growing EBITDA projected to reach £14.8 million in 2024. Please note these are forecasts, not guaranteed. Revenue development, particularly in the short term, will be impacted by the start date on new client programs.
Capital raised in this round will provide additional cash runway. Funding will also be deployed to secure new client launches and potentially upgrade existing customers MORE TH>N and Admiral from the original cashback proposition they started with to the full Customer Engagement Centre/digital wallet offering. If this is successful, the Company’s proposed Series A round in Q2 2021 is expected to be at an uplift to the current valuation – not guaranteed.
Based on the illustrative assumptions in the Private Placement Memorandum, the equity target return could be 14.1x in 2024 (high risk and not guaranteed) before EIS tax relief.
Gobsmack has engaged West Hill Capital (“WHC”) to raise £5 million from a combination of Convertible Loan Notes (CLNs) and EIS equity. The CLNs are part of the government’s new Future Fund that provides convertible loans of up to £5 million with up to 100% of funding matched by government-supported entities. Investors can choose to invest in EIS equity, CLNs or a combination of the two.
£3.5 million has been raised to date from existing investors (plus an additional £500k of matched funding), and Wealth Club has secured an allocation of £500k. The offer for CLN applications is expected to close soon.
The minimum investment through Wealth Club is £21,150 equity (45 shares), £20,000 CLN, or £20,340 combined (£10,000 CLN and £10,340/22 shares) and you can apply online.
Please note, you will also need to become an “elective professional client” of West Hill before your investment is accepted.
- Proven business model – £1.2 million revenue expected in 2020, projected to grow to £34 million and £14.8 million EBITDA by 2024 (not guaranteed)
- Over 90% of projected revenues are recurring
- Blue-chip clients MORE TH>N and Admiral (both owned by FTSE 100 companies)
- Strong developed pipeline including The Post Office, SAGA and JaJa (if contracts for the Customer Engagement Centre/digital wallet are signed with these companies, together with MORE TH>N and Admiral, the projected revenue would be worth over £30 million over 3 years – not guaranteed)
- FCA regulated with proprietary technology;
- Proven management team and Board who have collectively invested over £1 million to date and are investing again in this round
- £5 million funding round – c.£2.7 million raised to date (plus £500k anticipated from government scheme matched funding – not guaranteed)
- Target equity return 14.1x in 2024 (not guaranteed, based on the illustrative assumptions in the Private Placement Memorandum) before EIS tax relief
- Choice of EIS equity or Convertible Loan Note
- Limited capacity – £500k Wealth Club allocation
- Single company deal with no diversification, high risk
- Pre-money valuation £22.5 million
- Minimum investment £21,150 equity (45 shares), £20,000 CLN, or £20,340 combined (£10,000 CLN and £10,340/22 shares)
- You can apply online – please note, you will also need to become an “elective professional client” of West Hill before your investment is accepted
This overview is based on the information available in the Private Placement Memorandum prepared by the Company in conjunction with West Hill Capital and information provided by the management team and/or West Hill Capital. 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.
Gobsmack is a subscription-based digital loyalty and rewards platform. Far from being ‘another reward programme’, Gobsmack’s powerful analytics can pinpoint the moments a brand should engage a customer in timely and relevant conversation – especially at key life stages (e.g. moving home) and product stages (e.g. renewal) – with a view to turning timely engagement into more sales, retention and loyalty.
Gobsmack’s target clients are UK and international companies with 1+ million customers operating in sectors that have increasingly fickle, price-driven customers – particularly insurance, travel, telecommunications and utilities.
The company’s pipeline of potential clients includes The Post Office, SAGA, Vodafone, Policy Expert, Geico, Suncorp, KPMG, LV=, British Gas, Nationwide, Yorkshire Building Society, O2, E-on and Lastminute.com.
Royal Sun Alliance Group, which owns existing client MORE TH>N, has expressed interest in expanding the program across all parts of the business, including its affinity partnerships with Tesco, John Lewis, Marks & Spencer, Argos and others, providing access to an additional 17 million potential customers.
In addition to securing new clients, another strategic focus is to upgrade existing clients MORE TH>N and Admiral from the Gobsmack cashback offering to the full Customer Engagement Centre/Digital Wallet (which includes a self-service dashboard, cashback module and marketplace). This should generate material recurring revenues. Both Admiral and MORE TH>N are expected to confirm this transition imminently.
Previous fundraisings enabled the development of the original platform, its test launch with Royal Sun Alliance, the delivery of the technology’s second iteration, the securing of the first clients and the development, build and launch of their programmes, and the continued growth of the strong sales pipeline.
The Board has invested in excess of £1 million to date and is investing again in this round alongside WHC.
Now, to provide cash runway, upgrade its existing customers and deliver the next three client launches ahead of a planned Series A round in Q2 2021, Gobsmack is raising £5 million under EIS equity and Convertible Loan Notes. £2.7 million has already been raised and a further £500k government scheme matched funding is expected. £500k is exclusively available to Wealth Club members.
Based on current projections, the Company expects to be cash generative from 2022 – not guaranteed.
Investors can subscribe for one or both of:
- EIS-qualifying shares (equity) – target return 14.1x in 2024 (based on the illustrative assumptions in the PPM, high risk and not guaranteed) before EIS tax relief.
- Unsecured Convertible Loan Notes (8% simple interest due on default or conversion), which are expected to receive matched funding from the government’s Future Fund with the potential for conversion at a 20% discount to the next qualifying funding round or repayment at a 100% premium, if conversion does not occur. Conversion is likely to be in the form of institutional investment next year – this, alongside the returns from the loan note, is not guaranteed. The detailed terms of the loan notes are set out in the Convertible Loan Notes Agreement.
The minimum investment is £21,150 equity (45 shares), £20,000 CLN, or £20,340 combined (£10,000 CLN and £10,340/22 shares).
The rules governing investors who subscribe for a combination of EIS equity and CLNs are complex and can depend on individual circumstances, so if unsure investors should take expert advice before investing – please refer to the Private Placement Memorandum (PPM) for further details.
Operating a SaaS model, Gobsmack offers its proprietary platform technology to blue-chip clients primarily as a combined digital wallet and Customer Engagement Centre proposition; however, clients can also opt to utilise the cashback proposition on its own.
Gobsmack enables its clients’ customers to collect cash rewards on everyday spending. There are currently more than 3,500 partner brands online and in-store – including AVIS, Sainsbury's and Just Eat. Importantly, wallet funds can only be redeemed against the purchase of client products and services (be it insurance renewals or phone, energy and credit card bills). In this way, customers save costs by remaining loyal to a brand.
With Admiral or MORE TH>N, the reward cashback generated often covers the total cost of insurance renewal. This could mitigate the risk of losing customers, potentially making Gobsmack’s platform a valuable part of the clients’ business. Significantly, both clients have found that even with wallet balances as low as £5, customer retention rates have increased between 3% and 18% and 3.5% of customers are purchasing secondary products.
Clients pay a one-off set up fee of c.£100,000, which covers the cost of building the bespoke client-branded platform.
Contracts are based on multi-year licences and over 90% of projected revenues are recurring from a combination of sources, including:
- Annual user fees per wallet
- Commission share – a percentage of cashback earned
- Tenancy – retailer payment for exposure on the platform
- Interest on cashback funds held
- Data analytics services and sale of anonymised customer data
Gobsmack’s forecast growth is predicated on upgrading its existing clients to its full Customer Engagement Centre, increasing its client base, and increasing the number and size of digital wallet and CEC users. It is the Company’s strategy to follow its customers and partners into other geographical territories, as and when management and financial capacity are available.
Covid-19 has impacted top-line growth and resulted in Gobsmack being behind their previous plan. Some planned projects with new clients have been delayed; for example, The Post Office, which had been expected to launch during 2020, is now delayed until mid-2021. Further, existing clients Admiral and MORE TH>N delayed the decision to upgrade to the full platform whilst they focused on dealing with the crisis. This has resulted in revenue forecasts being revised down for 2020 and throughout the forecast period. The Company is now undertaking an additional fundraise to maintain cash runway.
However, also during 2020 both clients’ programmes had begun to mature and have generated empirical data proving customers with a digital wallet renew at a higher rate than those without. As a result, they have now re-engaged in upgrade discussions in recent months and negotiations are in final stages – both Admiral and MORE TH>N are expected to sign and upgrade, imminently.
More widely, Management believes the Covid-19 crisis and the shift to home working have further underlined the need for large corporates to have an effective digital communication platform outside the traditional approach of call centres. Possibly reflecting this, the Company has seen increased interest in its solution.
CEO Henry Allen leads the executive team. Over the last 25 years, he has managed a variety of businesses principally in the financial services world, including leasing, lending, insurance and private equity, in both consumer and commercial customer segments. His experience includes multiple senior roles at both GE Capital (including leading the commercial finance business in Europe) and Marsh (including leadership of the multinational and global personal lines businesses, whilst based in New York), as well as working in private equity, consultancy and the management of a smaller growth-oriented business. Henry has previous experience of running an early-stage technology business focused on providing white label products and services.
Co-founders and non-executive Directors
The co-founders of the business, John Shaw and Max Carruthers, have invested considerable time and financial resources in taking the Company to its current position.
Max Carruthers, former COO of a major AXA subsidiary, has recently retired as non-executive Chairman. Max has been replaced by Peter Jones, previously a non-executive Director of Gobsmack. Peter is a Certified Accountant with 19 years’ corporate finance experience across the financial services and utilities sectors.
John Shaw is a serial entrepreneur, a Founding Director of HUGHUB (digital broker platform) and a Founding Member and Creative Director of Aitch-C (financial services brand specialist).
Financials and target returns
The Company has been funded to date by £12.7 million equity and £510k convertible loan notes (before this round).
In May 2018, the Company received EIS advance assurance. In April 2019, HMRC confirmed in writing that the Company qualifies for EIS relief as a Knowledge Intensive Company. The Company has received authority to issue EIS certificates to qualifying investors for all its capital raises to date.
The Company is forecasting £1.2 million of sales in this current year. Sales are forecast to grow to £3.3 million in 2021 and to £11.7m in 2022, taking the company into profitability. Thereafter, rapid growth is forecast and by 2024 the Company estimates sales of £34.0 million and EBITDA of £14.8 million. Please note, these are all illustrative projections and not guaranteed.
The fully diluted pre-money valuation at the issue price in this round is £22.5 million.
In terms of an exit, Management believes the strong recurring income could potentially make Gobsmack attractive to private equity or trade buyers, such as Cardlytics, the $2 billion NASDAQ-listed big-data analytics company.
Should the Company deliver its ambitious plans, investors in this round could receive attractive returns commensurate with the risk. On the basis of the illustrative projections in the PPM, investors in the Company could achieve either three-year returns of 9.4x before EIS tax relief or four-year returns of 14.1x before EIS tax relief, were the illustrative assumptions to be achieved. These are illustrative projections, high risk and 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.
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 Private Placement Memorandum which contains further details on the considerable risks, alongside the Wealth Club Risks and Commitments.
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 Company is behind its previous plan and has revised its illustrative projections down. Forecast sales have been pushed back throughout the forecast period and have for 2020 been reduced from £5.2 million to £1.2 million. Associated illustrative exit returns for 2023 and 2024 have been reduced from 21.1x to 9.4x and from 31.1x to 14.1x respectively.
The Company is loss-making, with a current monthly cash burn rate of c.£500k. If successful, funding in this round will fund the business to Q2 2021 when it plans to launch its Series A round. This is not guaranteed – if this funding is not secured this will impact the Company’s ability to deliver its forecasts.
There can be no certainty at this stage that the Company’s application for matched funding of the CLNs under the Government’s Coronavirus Future Fund will be accepted. If this application is not accepted, this could impact the ability of the Company to raise sufficient funding.
The value of tax benefits depends on circumstances and tax rules can change. Investors are recommended to take expert advice if you have invested in the previous convertible loan note issued by the Company or if you intend to invest in both Ordinary Shares and CLNs under the Private Placement. Please refer to the PPM for further details.
The conversion and redemption terms of the CLNs, alongside their interaction with EIS and eligibility for tax relief, are highly complex and investors should seek professional advice if in any doubt. Please refer to the PPM for further details.
Investors are investing in the company directly, so will pay no direct initial or ongoing charges.
WHC will share a part of their fundraising fee with Wealth Club equal to 3.3% of the capital raised by Wealth Club. There are no other fees paid to Wealth Club.
Please see the offer documents for more details on fees.
As with many businesses, COVID-19 has significantly slowed Gobsmack’s planned top-line growth.
However, Gobsmack considers that considerable progress has still been made to build the business for long-term success – a significant pipeline of potential customers has been built and early data generated from existing customers has shown that Gobsmack is already increasing customer loyalty and driving follow-on sales for existing clients.
You should form your own view on this single-company offer.
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.
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