Sofant Technologies EIS

Extra £150k now available – 7 July

The offer reached capacity in June. However, Sofant Technologies has now agreed to accept overfunding – up to an additional £150k – from Wealth Club members. 

Invest at an estimated 30% discount to planned Q4 pre-Series A tranche: exclusive opportunity to participate in a deal only open to existing – mainly institutional – investors, including Scottish Investment Bank

This is an exclusive opportunity to invest in a patented satellite communication (SatCom) and 5G antenna developer backed by several financial institutions, including Scottish Investment Bank. The offer reached capacity in June. However, Sofant Technologies has now agreed to accept overfunding – up to an additional £150k – from Wealth Club members, at an estimated 30% discount to a planned Q4 pre-Series A tranche. This offer is not available elsewhere.

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.

Make a reservation now – no obligation

Sofant Technologies EISWireless 5G networks are being rolled out across the world – aiming to deliver phenomenal data-carrying capability far beyond 4G technology, to enable a future of driverless cars, smart homes, global remote working and digitalised healthcare.

Significant investment in SatCom infrastructure is supporting this rollout. Hundreds of small satellites are launched annually; Elon Musk’s SpaceX plans to launch over 12,000 by the mid-2020s.

Not all the necessary technologies have kept pace, however. Particularly, SatCom and 5G operators are still using legacy antenna technologies suited to 4G and other lower frequency radio systems, not optimised for 5G technology. They guzzle energy and require complicated cooling systems to prevent overheating – all at huge expense.

Edinburgh university spinout Sofant Technologies Limited (“Sofant” or “the Company”) aims to offer a next-generation solution with significant cost savings. Now at an advanced stage of development, the result of 14 years’ research and over £8 million investment is a patented 5G-ready smart antenna that is smaller, lighter, generates little heat and consumes 70% less energy.

Sofant is in advanced discussions with several blue-chip SatCom providers – including global leader Inmarsat plc – to enter £multi-million joint development agreements (JDAs) to develop and commercialise the technology. 

If all goes to plan, Sofant aims to not only sign its first JDA but secure £3.5 million grant funding from the European Space Agency (ESA) and manufacture its production prototypes imminently. 

The Company launched its £3 million pre-Series A funding round earlier this year. Existing investors led by Scottish Investment Bank, EMV Capital and Kelvin Capital moved swiftly to commit £1 million. 

Once JDAs are signed, and/or grant projects are initiated, the Company expects its valuation to increase with the associated reduction in development risk. Therefore, the management team has decided to push back completion of its pre-Series A fundraising to Q4, relaunching the round at an expected 50% increase in valuation (not guaranteed).

The offer reached capacity in June. However, Sofant Technologies has now agreed to accept overfunding – up to an additional £150k – from Wealth Club members – at a 30% discount to the planned future uplifted valuation (not guaranteed). Please note, this offer through Wealth Club is the only opportunity for new investors to access this deal at this price. 

Please note, the Company is currently pre-revenue. Experienced investors comfortable with the high risks could potentially be rewarded with attractive returns if things go well but also loss of capital if they don’t. The business forecasts EBITDA of £10.8 million in FY24, the Year 5 mid-case target return is 9x and high-case 11x, before tax reliefs – not guaranteed. 

The minimum investment through Wealth Club is £20,304.90 and you can apply online.

Read important documents and apply

Highlights

  • Smart antenna technology addressing SatCom and 5G industry pain-points and giving 70% energy savings
  • Well developed pipeline of potential SatCom customers and joint development partners
  • Industry-leading and proven management team and Board
  • Significant addressable market estimated at $1.8 billion, expected to grow to $14.1 billion by 2025
  • Invest at a 30% discount to planned Q4 funding round (not guaranteed) – exclusive to Wealth Club
  • Supportive institutional shareholders expected to invest in future rounds
  • Well capitalised with over £8 million invested into the technology to date
  • Forecasting £40.2 million sales and £10.8 million EBITDA by 2024 – not guaranteed
  • Pre-money valuation £10.6 million
  • Mid-case target return 9x, high case 11x before EIS tax relief after 5 years – not guaranteed
  • Limited capacity – additional £150k now available
  • Single company pre-revenue deal with no diversification, high risk
  • Minimum investment £20,304.90

This overview is based on the information available in the offer documents prepared by EMV Capital 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 business

Sofant is an innovative technology company headquartered in Edinburgh. 

In 2011, it spun out from the University of Edinburgh to commercialise a 5-year project developing a low-cost, energy-efficient, high performance, 5G-ready smart antenna. Over £8 million has been invested into the technology to date, including £3 million in grants from Innovate UK and the ESA.

Sofant owns a family of patents over its technology: this includes the design of its smart antenna system and the novel technology, algorithms and processes contained within. The aim is to sell this smart antenna into the SatCom and 5G markets. 

The Company’s management team and board have over 75 years’ combined experience in the industry, with a strong track record of scaling, raising funds and exiting leading semiconductor and wireless technology businesses. CEO David Wither, for instance, has raised over £15 million from venture capital and private equity as CEO of Sarantel (antenna manufacturer) and Aconeer AB (sensor technology provider), and as Director of Phase Change Energy (energy-efficient storage solutions). 

Non-executive director Ed Granville co-founded semiconductor business Calvatec Ltd and grew revenues from the ground up, before selling to Maxim Integrated Products for an undisclosed sum in 2011. 

The technology – a simplified overview

All radio systems need antennas to send and receive signals. The higher the frequency – required for greater bandwidth – the smaller the antenna needs to be, in order to steer radio waves in different directions to aggregate the signals. 

Today’s wireless telecom systems use small “phased array antennas” to steer these signals electronically, rather than mechanically. Currently serving 4G technology, among other applications, these antennas use conventional semiconductors, which consume large amounts of power and require expensive cooling systems to prevent overheating – a problem expected to escalate as the volume of data traffic increases, and at the higher 5G radio frequencies for which these antennas were not designed.

The move to 5G requires not only smaller, energy-efficient and fit-for-purpose antenna arrays – but many more of them. Because 5G radio signals penetrate to a shorter range, networks will need to install a larger number of small base stations across public spaces as relays, as well as receivers known as CPE (customer premises equipment) devices.

Sofant’s patented technology aims to solve these significant pain-points faced by SatCom providers and the 5G market. It replaces power-hungry conventional semiconductors with a 70% more energy-efficient radio frequency microelectromechanical system (RF MEMS). Furthermore, it houses this technology within a cost-competitive, more lightweight and low-profile antenna design – to make a 5G-ready smart antenna. 

Sofant expects its smart antenna testing costs to be materially cheaper, due to its novel architecture design, while its manufacture should be easily scalable as this is outsourced and uses existing semiconductor manufacturing processes.

Market

The fall in launch cost and miniaturisation of satellite technology has led to a boom in small satellite deployments, with the market aware of a bottleneck in antenna technologies capable of operating efficiently in the frequencies required for high bandwidth (required for 5G).

In the SatCom market, management estimates an annual demand for 81,000 antenna arrays across infrastructure, maritime, rail, commercial airlines and unmanned aircraft systems – giving an addressable market of $1.5 billion. This is expected to increase at a CAGR of 12.6% to $3.5 billion in 2025, fuelled by rapid growth in small satellite deployments. 

In the 5G market, based on estimated antennas per square metre required across wealthy cities, management estimates there is annual demand for 10.7 million device antennas – giving an addressable market of $290 million. This is expected to increase rapidly with the rollout of 5G, potentially growing at 146% per annum to reach $10.6 billion in 2025. 

This gives Sofant a potential total addressable market of $1.8 billion in 2020, increasing to $14.1 billion in 2025.

Commercialisation 

Subject to the successful completion of production prototypes and processes, the commercial launch is planned in early 2022. 

Sofant is already in advanced discussions with two SatCom operators: Inmarsat and SES. Inmarsat plc is a $1.5 billion revenue SatCom provider to the maritime and aerospace industries, while SES is a €2 billion revenue satellite owner and operator providing video and data connectivity globally. 

These relationships could see the business generate revenues before commercial launch, through Joint Development Agreements. The Inmarsat JDA is expected to be worth up to $10 million – not guaranteed.

Sofant will initially target the SatCom market, followed by the 5G market from 2023. The plan is to sell into both markets through direct sales and partnerships with industry suppliers and resellers. 

The Company is forecasting sales of £40.2 million in 2024, two years after commercial launch, and sales of over £100 million in 2025 (all forecasts not guaranteed).

The offer

This is a private, single company EIS offer, exclusively available to Wealth Club members. It is part of a wider £3 million pre-Series A funding round, with the final tranche planned in Q4. £1 million has already been secured from existing investors, who invested in line with the valuation at the start of the year when the round was agreed. The share price in the current round is 20% higher.

At a pre-money valuation of £10.6 million, this offer – that new investors can only access via Wealth Club – is made at a 30% discount to the future planned Q4 tranche (not guaranteed).

The funding will be deployed towards progressing the technology past production prototype stage. A £4 million Series A round is expected to follow in 2021, to bring the product to market.

Predicated on the business achieving its forecasts, the Company is targeting mid-case returns of 9x, high case 11x, before tax relief in year 5 – not guaranteed. 

Covid-19 impact

The Company believes COVID-19 has had minimal operational impact to date, as its production partner Silex Microsystems is based in Sweden, where there have been fewer COVID-19 restrictions. Management believes Sofant will emerge from the crisis in a stronger position, given its technology addresses challenges facing the telecoms industry in meeting demands for expanding network capacity and increasing connectivity. Following its recent £1 million funding, the Company has cash headroom for the next 12 months. However, management will continue to review the situation and will make any adjustments to its cost base as it deems necessary.

Target returns

Semiconductor businesses have raised significant funding and seen several high-value exits in recent years with favourable revenue and EBITDA multiples. 

In June 2019, German semiconductor manufacturer Infineon purchased US business Cypress Semiconductors for $10 billion (4x 2018 revenue, 28x 2018 EBITDA).

In 2017 IQE, a Cardiff-based AIM-listed semiconductor wafer specialist, raised £95 million. This valued the business at £960 million (6.2x 2017 revenue, 26x 2017 EBITDA).

Graphcore, the Bristol-based semiconductor business with applications across AI and machine learning, raised £150 million in 2018 – valuing the business at $1.95 billion, despite having revenue of only $1.2 million at the time. 

RF MEMS is an area of growing interest within the semiconductor industry, attracting significant capital.

In 2019, semiconductor giant Qorvo acquired Cavendish Kinetics for $208 million. Before the acquisition, Cavendish, a developer of RF MEMS switches and tuners for smartphones, had raised $68.5 million.

Alternative technologies attempting to address SatCom power consumption issues have also attracted significant capital. Notably, Kymeta has raised c.$200 million from Bill Gates, Intelsat and Lux Capital to develop antennas made from metamaterials (materials engineered to have non-naturally occurring properties).

Sofant forecasts revenues of £40.2 million and EBITDA of £10.8 million in year 5. It targets a mid-case return of 9x, high case 11x after five years (before EIS tax relief) if the business achieves its forecasts. These targets returns for this high-risk offer are not guaranteed.

Exit options

As with all EIS companies, there is the option of a trade sale, a sale to another investor, refinancing or a stock market listing. 

Management believes the most likely exit route could be through a trade sale to a phased array antenna vendor or to an RF semiconductor business. The direct IP purchase of the Sofant RF MEMS technology could also be attractive to a trade buyer.

Exit options and timeframes are not guaranteed. Note: if the Company did achieve an early exit, this could affect EIS tax relief.

Management 

CEO David Wither leads the executive team. David has over 23 years’ experience leading RF technology companies. He has successfully brought innovative RF technologies to market, raised over £15 million from venture capital and private equity and floated previous businesses as CEO. At Sarantel, an antenna manufacturer, David secured £14 million investment from private equity giant 3i and Foresight VCT, before floating the business on AIM in 2005 for £40 million. David then went on to raise further venture capital funding for Swedish high-tech sensor technology provider Acconeer AB, and energy-efficient storage solutions provider Phase Change Energy Solutions. 

The technical team supporting David is headed up by CTO Victor Steel, who has over 30 years’ experience in the RF component industry. Victor spent 15 years at RF Micro Devices as Vice President, helping the business grow from a startup to a multi-billion dollar business. Victor then worked for WiSpry, a well-funded semi-conductor startup based in California. 

VP of Engineering and Operations Andrew Christie is an experienced engineering manager with 27 years’ experience in the RF industry and has worked with both David and Victor in previous RF technology development projects.

Board of directors

Chairperson Elizabeth Kennedy has over 30 years’ corporate finance experience, including 16 years at Brewin Dolphin as head of Scottish Corporate Finance operations. Elizabeth is a member of the AIM Advisory Group, a Director at Scottish VC Kelvin Capital and a NED for a wide range of businesses, including Octopus AIM VCT 2 plc. 

Non-executive Director Ed Granville is an experienced semiconductor entrepreneur. In 2008 Ed co-founded semiconductor business Calvatec, and as CTO drove revenue from the ground up before selling to Maxim Integrated Products for an undisclosed sum in 2011. 

EMV Capital

EMV Capital Ltd (“EMV”) is a London-based pan-European award-winning investor focused on B2B companies. EMV invests in – and provides advisory services to – investments that involve a range of technologies, including industrial high-tech businesses. EMV’s team has led and structured investments alongside some of the world’s leading corporations, including ABB, Philips Lighting, Evonik Industries, Mitsubishi and Flex.

Dr Ilian Iliev, founder of EMV, is an Investment Director at Sofant. He provides ongoing strategic advice and has assisted with fundraising since EMV’s initial investment in 2019. EMV advises the Company on positioning itself for the most successful exit and driving shareholder value. 

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 Information Memorandum, which contains further details on the considerable risks, alongside the Wealth Club Risks and Commitments

This is a single company pre-revenue EIS offer with no diversification. It involves investing in an early-stage, pre-revenue deep technology 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. 

If the Company were to achieve an early exit, this could affect EIS tax relief.

There is no guarantee the Company will increase in valuation in the planned Q4 pre-Series A tranche, or that further funding will be secured.

Fees

Investors are investing in the Company directly, so will pay no direct initial or ongoing charges. 

EMV, which led the recent funding round and arranged this private offer, will pay an introducer fee to Wealth Club equal to 4% of capital raised. 

On exit, EMV is entitled to a performance fee predicated on investors achieving an exit greater than 1.1x. EMV will charge investors a 20% performance fee on investor profit over this hurdle. EMV will pay Wealth Club 15% of this fee, which equates to an overall 3% performance fee. There are no other fees paid to Wealth Club.

Our view

Sofant has invested significant time and capital in its patented technology – generating early traction and interest from blue-chip SatCom providers, despite its product still being in development.

The SatCom sector appears to be experiencing significant growth. Large SatCom providers have a track record of partnering with and investing significantly into innovative technology companies in this sector – in several cases going on to acquire these businesses. This suggests Sofant could be an attractive proposition for trade buyers in the future, although there are no guarantees.

The management and board have significant experience in the sector, commercialising RF devices and scaling and exiting leading semiconductor businesses. 

We expect significant interest in this discounted offer, which is only available for a limited time and exclusive to Wealth Club members.

In our view this is an exciting opportunity to invest in an IP-rich company already backed by several institutions – but, as always, experienced investors should form their own view.

Read important documents and apply

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
9x
Funds raised / sought
£150,000 sought
Minimum investment
£20,304
Deadline
Limited capacity
Last updated: 7 July 2020

News about EIS Investments. Read all